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VALE
O R
EFER
ENCE
DO
CUM
ENT
2006
Reference document
2006
43, rue Bayen - 75848 Paris cedex 17, FranceTél. : 33 (0)1 40 55 20 20 - Fax : 33 (0)1 40 55 21 71Valeo French ”Société Anonyme” with a capital of 232,741,851 euros - 552 030 967 RCS ParisValeo.com
VAL004_DRF06_VA_COUV_PLANCHE.ind1 1 19/04/07 20:13:13
Key figures p. 2
The English language version of this report is a free translation from the original, which was prepared in French. All possible care has
been taken to ensure that the translation is an accurate presentation of the original. However, in all matters of interpretation, views or
opinions expressed in the original language version of the document in French take precedence over the translation.
1 ACTiViTy p. 7
History p.8
TheGroup p.10
Geographicalpresence p.25
Competitivecontext p.26
Keyeventsin2006 p.26
Recenteventsandoutlook p.31
2 MANAgEMENT REpORT p. 33
Accountingmethods p.34
Statementofincome p.34
Maininvestmentsoverthepastthreeyears p.36
Changeinstockholders’equity p.37
provisions p.38
Cashflowsanddebt p.39
Commitments p.39
Remunerationofcorporateofficersanddirectors p.39
Risksanduncertainties p.41
Informationlikelytobeimpactedbyapublictenderoffer p.43
Claimsandlitigation p.44
Outlook p.44
Subsequentevents p.45
parentcompanyfinancialstatements p.45
EnvironmentalIndicators p.45
SocialIndicators p.55
3 CONsOLiDATED FiNANCiAL sTATEMENTs 2006 p. 69
Consolidatedstatementsofincome p.71
Consolidatedbalancesheets p.72
Consolidatedstatementsofcahflows p.73
Statementsofrecognizedincomeandexpenses p.74
Statementofchangesinstockholders’equity p.75
Notestoconsolidatedfinancialstatements p.76
StatutoryAuditors’reportonthe2006IFRSconsolidatedfinancialstatements p.127
4 CORpORATE gOVERNANCE p. 129
RapportoftheChairmanoftheBoardofDirectorsrelatingtotheconditionsofpreparationandorganizationoftheBoard’swork,thepossiblelimitationstothepowersoftheChiefExecutiveOfficerandtheinternalcontrolproceduresputinplacebytheValeoGroup p.130
CompositionoftheBoardofDirectorsatDecember31,2006 p.139
StatutoryAuditors’ReportonthereportoftheChairmanoftheBoardofDirectors p.142
5 iNFORMATiON ON ThE COMpANy AND iTs CApiTAL p. 145
Generalinformationabouttheissuer p.146
FeespaidbythegrouptotheAuditorsandmembersoftheirnetworks p.166
GeneralinformationabouttheCompany’scapital p.167
Currentownershipstructure p.172
MarketfortheCompany’ssecurities p.176
Investorrelations p.178
Informationonsubsidiariesandaffiliates p.181
personresponsiblefortheregistrationdocument p.184
VAL004_DRF06_VA_COUV_PLANCHE.ind2 2 19/04/07 20:13:13
2006 Reference document - VALEO �
2006 Reference document
Group profileFully focused on the design, production and sale of components, systems and modules for automobiles and trucks, both on the original equipment market and the aftermarket Valeo is an independent and international industrial group.
It is one of the world’s leading automotive suppliers.
The Group employs 69,800 people representing 91 nationalities in 129 production sites, 68 Research & Development centers and 9 distribution platforms in 29 countries.Valeo applies its profitable growth strategy in line with a policy of sustainable development.
This “document de référence” was filed with the Autorité des Marchés Financiers (AMF) on March 29, 2007 , pursuant to article 212-13 of the AMF’s General Regulations. It may only be used in connection with a financial transaction if it is accompanied by a memorandum approved by the AMF.
In accordance with article 28 of European Regulation No. 809/2004 dated April 29, 2004, the reader is asked to refer to previous “documents de référence” containing the following specific information:
1. The management report, consolidated financial statements, parent company financial statements, Statutory Auditors’ reports on the consolidated financial statements and parent company financial statements for the year ended December 31, 2005, and the Statutory Auditors’ special report on regulated agreements relating to 2005, included in the “document de référence” filed with the Autorité des Marchés Financiers on April 3, 2006 under No. D. 06-0209.
2. The management report, consolidated financial statements, parent company financial statements, Statutory Auditors’ reports on the consolidated financial statements and parent company financial statements for the year ended December 31, 2004, and the Statutory Auditors’ special report on regulated agreements relating to 2004, included in the “document de référence” filed with the Autorité des Marchés Financiers on March 29, 2005 under No. D. 05-0290.
2006 Reference document - VALEO2
Key figures
Key figures
SaleS by region
In million euros and in % of sales
South AmericaAsia and othersNorth AmericaEurope
20062005*2004*
3%10%
16%
71%
5%12%
14%
69%
5%13%
13%
69%
9,018 9,736 9,970
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
SaleS by market (2006)
In % of sales
82%
OEM
18%
Aftermarket
2006 Reference document - VALEO �
Key figures
20062005*2004*
17.2%16.0% 15.4%
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
17.3% 17.1% 16.3% 15.8% 15.9%14.9%
S2-2006S1-2006S2-2005*S1-2005*S2-2004*S1-2004*
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
operating income
In % of total operating revenues
groSS margin
In % of sales
S2-06S1-06S2-05*S1-05*S2-04*S1-04*
4.4%
2.7%3.2% 3.3% 3.2%
2.1%
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
20062005*2004*
3.5% 3.3%2.7%
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
2006 Reference document - VALEO�
Key figures
reSearch and development
In % of total operating revenues
20062005*2004*
6.4% 6.5% 6.6%
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
net income
In million euros and in % of total operating revenues
baSic earningS per Share
In euros
20062005*2004*
240**
142161
2.6% 1.4% 1.6%
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
** Including an exceptional tax gain of 83 million euros
20062005*2004*
2.92
1.802.10
* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account for non strategic activities
2006 Reference document - VALEO �
Key figures
net financial debt
In million euros and in % of equity
12/31/200612/31/200501/01/2005
497
1,080968
27% 63% 55%
2006 Reference document - VALEO6
Key figures
2006 Reference document - VALEO �
1Activity
History P. 8
The Group P. 10
1. Description and organization ......................................................................................................................... 10
2. Domains and Product Families ...................................................................................................................... 11
3. Aftermarket products and services .............................................................................................................. 15
4. Functions ............................................................................................................................................................... 17
Geographical presence P. 25
Competitive context P. 26
Key events in 2006 P. 26
1. Commercial success ........................................................................................................................................... 26
2. Technological innovations ............................................................................................................................... 27
3. Strategic operations .......................................................................................................................................... 29
4. Operational excellence ..................................................................................................................................... 29
Recent events and outlook P. 31
2006 Reference document - VALEO�
ACTiviTy1 History
History
The Group’s origins date back to the creation, in 1923, of Société
Anonyme Française du Ferodo (SAFF), which operated out of a
workshop in Saint-Ouen near Paris. SAFF started by distributing,
then manufacturing, brake linings and clutch facings under the
Ferodo license. In 1932, SAFF was listed on the Paris Bourse.
For SAFF, the 1960s and 1970s were a time of development,
both through diversification into new sectors (brake systems in
1961, thermal systems in 1962, lighting systems in 1970 and
electrical systems in 1978) and through international growth
(Spain in 1963, Italy in 1964 and Brazil in 1974). On May 28, 1980,
at its Annual General Meeting of Shareholders, SAFF adopted the
name Valeo, a Latin word meaning “I am well”.
By the 1980s, Valeo had become a global Group, developing
through acquisitions around the world:
1987Acquisition of Neiman (security systems) and its Paul Journée
subsidiary (wiper systems).
Acquisition of Chausson’s heat exchanger business.
1988Acquisition of Clausor and Tibbe (security systems in Spain and
Germany).
Creation of Valeo Pyeong Hwa (clutches and ring gears in
Korea), Valeo Transtürk (clutches in Turkey), and Valeo Eaton
(clutches for heavy-duty trucks in the United States).
Creation of the Valeo/Acustar Thermal Systems Inc. joint
venture (climate control, United States).
1989Acquisition of Delanair (climate control in the UK).
Acquisition of Blackstone (engine cooling in the United States
with businesses in Mexico, Canada, Sweden, Italy and Spain).
This drive for growth was accompanied by the refocusing of the
Group’s activities around a number of core businesses, and the
sale of non-strategic activities (brake linings, ignition, horns) in
1990.
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Throughout the 1990sThe Group implemented a powerful strategy based on:
A new industrial culture: the Group adopted its “5 Axes”
methodology in 1991 (see paragraph 4.3, Industrial Functions,
“The Group”);
A sustained Research & Development drive: in 1992, the
Group set up an electronics research center in Créteil (France)
and an electronic module production site at Meung-sur-Loire
(France). In 1993, Valeo opened R&D centers for lighting
systems in Bobigny and for clutches in Saint-Ouen (France);
increasing international growth: the first production sites in
Mexico and Wales (climate control) and Italy (lighting systems)
opened in 1993, and in 1994 the first joint ventures in China
were created for wiper systems, climate control, lighting
systems and electrical systems.
The Group’s external growth continued throughout the
decade:
1995Acquisition of Siemens’ thermal business in Germany.
1996Acquisition of a stake in Mirgor (thermal systems in
Argentina.
Acquisition of Fist Spa and a division of Ymos AG (security
systems in Italy and Germany).
Acquisition of Klimatizacni Systemy Automobilu (thermal
systems in the Czech Republic).
1997Creation of clutches joint ventures in India and China and a
friction materials joint venture in India.
Acquisition of Univel (security systems in Brazil).
Acquisition of the Osram Sylvania’s automobile business to
create Valeo Sylvania (lighting systems) in the United States.
1998Acquisition of the Electrical Systems activity of ITT Industries.
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2006 Reference document - VALEO �
ACTiviTy 1History
1999Acquisition of a division of Mando (electrical systems in South
Korea).
2000Creation of a joint venture with Unisia Jecs (transmissions in
Japan).
Acquisition of a stake in Zexel (thermal systems).
Strategic alliance with Ichikoh (lighting systems in Japan).
Acquisition of Labinal’s automotive business (Argentina, Eastern
Europe, France, India, Italy, North Africa, Portugal, Spain).
The first years of the new millenniumIn March 2001, Thierry Morin was appointed Chairman of the Board
of Directors of Valeo. The Group launched a program to streamline
its business and give itself greater room for maneuver:
industrial rationalization with production reorganized across
fewer sites, and a greater portion of sites in low-cost regions;
selective disposals of non-strategic businesses;
accelerated integration of recently acquired businesses, notably
the redeployment of the US facility at Rochester acquired from
ITT;
partnership approach with a select number of suppliers;
intensification of R&D efforts coupled with improved
productivity;
a revitalized marketing approach based on the concept of
Domains, which facilitate transversal synergies;
creation of technological partnerships with experts in various
fields, including International Rectifier, Iteris, Raytheon and
Ricardo, to introduce new technologies into the automotive
industry and accelerate the development of new products.
This program resulted in the gradual improvement of Valeo’s
margins between 2001 and 2003, and boosted confidence among
the Group’s customers.
in 2004Following this rationalization campaign, Valeo embarked on a new
phase of development as part of “Valeo 2010”, its strategic project.
The Group is establishing a platform from which to emerge as a
global leader in its businesses according to future developments
in the automotive equipment industry.
The first lever of development is the expansion of its
technological offering in order to provide solutions that
incorporate systems and services from three Domains: Driving
Assistance, Powertrain Efficiency and Comfort Enhancement.
Further synergies have been generated between product
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families in terms of R&D and the marketing of innovative new
products.
The second lever of development is in terms of marketing,
both through regional growth and through boosting the Group’s
presence in the aftermarket.
In geographical terms, the Group will increase its presence in
North America and Asia: close relations with all manufacturers
and the development of world platforms are strategic
advantages.
With the creation of Valeo Service, the Group now benefits from
an effective organizational structure that will enable it to win
a greater share of the aftermarket worldwide
The third lever of development is the enhancement of
operational excellence through the optimization of production
facilities and the supply chain. The objective is to offer total
quality to all customers on all markets.
The fourth lever of development is organizational.
in 2005Guided by its strategic objectives and its financial position, Valeo
has implemented a policy of targeted acquisitions designed
to reinforce its three Domains and increase its organic growth
potential.
The Group significantly developed its structure, notably by
increasing the role of the three innovation Domains, grouping
together the product families into one operational structure,
and strengthening functional teams, particularly the Technical
Department
Valeo acquired the Engine Electronics division of Johnson
Controls (JCEED), which designs and produces complete engine
management systems, electronic control units and electronic
motor drives as well as engine components.
2005 also saw a number of other deals which increased the
Group’s presence in Asia, especially China:
Acquisition of shares held by Bosch in the Group’s Climate
Control businesses in Asia (Zexel Valeo Climate Control and
Valeo Zexel China Climate Control). This gave Valeo control of all
the share capital of its climate control activities and compressor
production.
Following this transaction, Valeo increased its holding in two
Thai companies - Siam Zexel Co. Ltd. and Zexel Sales Thailand
Co. Ltd. – by 35.9% and 14.3% respectively, giving Valeo 74.9%
ownership of each of these two companies specializing in
automotive climate control.
In April, Valeo concluded a new joint venture with FAWER, the
automotive supply branch of FAW, one of the main Chinese
automakers. The new entity, 60% owned by Valeo, develops
and manufactures compressors for climate control systems
aimed at the Chinese market and at export. Its plant is located
in Changchun in the north east of China.
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2006 Reference document - VALEO10
ACTiviTy1 History
Valeo announced the creation of a joint venture with Hangshen
Electronics, a Chinese Tier One automotive supplier, for the
production of ultrasonic park assist systems. Valeo owns a 75%
share in this joint venture.
Valeo increased its stake in Ichikoh—the Japanese manufacturer
of automotive lighting systems and mirrors—from 22.7% to
28.2%.
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in 2006Valeo pursued its strategy to rationalize its portfolio, resulting
in the sale of its Electric Motors & Actuators business to the
Japanese Group Nidec, the sale of the bluetooth specialist
Parrot, and the sale of Logitec, a logistics business in Japan.
Valeo also acquired a 50% share in Threestar, one of the leading
radiator manufacturers in South Korea. This new entity, of which
the other 50% is held by Samsung Climate Control Group, is
called Valeo Samsung Thermal Systems.
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The Group
1. Description and organization
Valeo is an industrial group fully focused on the design, production
and sale of components, systems and modules for automobiles
and trucks, both on the original equipment and the aftermarket.
The Group’s sole sector of activity is “Automotive Supply”.
On 31.12.06, the Group employed 69,800 people, of 91 different
nationalities at 129 production sites, 68 Research & Development
centers and nine distribution platforms.
1.1. Organization: Original Equipment
The Group is organized into one hundred or so decentralized and
autonomous Divisions, and it is at Division level that resources
are allocated and performance is evaluated. The Divisions enjoy
the backing of Valeo’s functional networks and Branches, which
oversee the coherence of the Group’s Product Families; they
also exploit synergies with the Innovation Domains, and are
coordinated by National Directorates.
Valeo’s Industrial Divisions are responsible for running business
relating to OE production and sales from the various Product
Families for specific geographical areas.
1.2. Organization: Aftermarket
The industrial Divisions are also responsible for the production and
part of the distribution of Aftermarket products on behalf of the
Valeo Service structure, which handles the sale of products and
services relating to the aftermarket. Valeo Service comprises two
activities, one for each major distribution channel: automakers and
their networks, and independent distributors (including trading
groups). Valeo Service provides shared marketing and logistics
services for both activities.
1.3. Domains
Since the Valeo 2010 strategic plan was launched in 2004, the
Group has adopted a transversal approach to develop new
solutions. It promotes innovations involving several Product
Families. The Domains are responsible for the Research &
Development and Marketing of innovations. Their work centers
around three strategic areas, in line with customers’ fundamental
requirements: respecting the environment (Powertrain Efficiency
Domain), safety (Driving Assistance Domain) and comfort (Comfort
Enhancement Domain). Each Domain is in charge of its own
budget. When the innovations designed and developed by the
Domains reach the marketing stage, they are transferred to one
or several Divisions which take charge of commercial negotiations,
final development and production.
1.4. Product Families
Valeo has eleven product families which are, in alphabetical
order:
Climate Control;
Compressors;
Electrical Systems;
Electronics & Connective Systems;
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2006 Reference document - VALEO 11
ACTiviTy 1The Group
Engine Cooling;
Engine Management Systems;
Lighting Systems;
Security Systems;
Switches & Detection Systems;
Transmissions;
Wiper Systems.
Since May 2005, product families have been overseen by a single
Department: the Operations Department. This Department was
created to accelerate the deployment of best practices and
the implementation of synergies between Product Families. It
carries out operational control of the performance of individual
Divisions.
1.5. Functional networks
The main functional networks are as follows:
technical networks, under the responsibility of the Group’s
Technical Director since May 2005: Quality, Purchasing, Industrial,
Programs and Projects, Logistics, Information Systems, Real
Estate, and “5 Axes” – Valeo’s deployment and audit system;
International Affairs, structured according to customer business,
with a Client Director dedicated to each major automaker, and
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according to geographic region, with a Country Director for each
major region (North America, Japan-Korea-South Asia, China,
Brazil, Germany, Spain-Portugal, Italy);
Research and Development, under the functional responsibility
of the Product Family R&D centers and the operational
responsibility of Domains and Product Marketing;
Human Resources, also in charge of Ethics within the Group;
Risks, Insurance, Environment, Health and Safety, which co-
ordinates all actions in its domains;
all Finance, Legal and Strategic operations:the Financial Control network guarantees the reliability of financial reporting and certain physical indicators. Along with the teams in the Operations Department, it oversees the implementation of action plans,
the central Accounts teams define and apply rules relating to the risk management of external financing and of market risks relating to changes in interest rates, currency values and raw material costs,
decisions regarding transfers, acquisitions and the creation of joint ventures are coordinated centrally by a specialized team, supported, where necessary, by expertise from individual Product Families and Divisions,
Financial Communications;
the centralized Communication function defines communication
plans and coordinates internal and external communication
networks within the Product Families and Divisions.
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2. Domains and Product Families
The purpose of the Domains is to foster innovation in order to
offer the market comprehensive solutions relating to the issues of
safety, the environment and comfort (see paragraph 1.3 above).
The Domains work in synergy with the various Product Families
in order to offer innovative solutions bringing together the Group’s
different fields of expertise.
2.1. Driving Assistance
The Driving Assistance Domain designs and produces solutions
for monitoring the vehicle perimeter, providing the driver and
other road users with information about the vehicle’s immediate
environment and initiating necessary corrective actions. Three
Product Families contribute in particular to developing innovations
for this Domain: Switches & Detection Systems, Lighting Systems
and Wiper Systems.
2.1.1. Switches and Detection Systems
The Switches & Detection Systems Product Family designs and
manufactures products to improve the driver’s control of the
vehicle’s immediate environment. Notable for their efficiency
and ease of use, the technologies and systems developed allow
drivers to “keep their eyes on the road and their hands on the
wheel”, for maximum safety and driving comfort.
In 2006, contributions from the Switches and Detection Systems
Product Family in the Driving Assistance Domain particularly
focused on:
Ultrasonic Park Assist Systems which facilitate parking
maneuvers;
the Park4UTM park assist system, which enables drivers to
park a car semi-automatically in under 15 seconds. Based on
ultrasound technology, the system scans both sides of the
road for parking spaces, which it calculates according to the
vehicle length. Once a slot has been identified, the driver stops
and puts the car in reverse. The system then calculates the
trajectory and controls the vehicle steering. The driver, aided by
ultrasound sensors on the front and rear of the car, controls the
acceleration and braking during the maneuver. The maneuver
can be interrupted at any time by braking or simply taking over
the steering wheel;
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2006 Reference document - VALEO12
ACTiviTy1 The Group
the lane departure warning system, LanevueTM, which alerts
the driver of unintentional lane departures via an audible or
vibrating signal;
blind spot radar detection systems, enabling drivers to detect
the presence of vehicle in their rearward blind spots;
the front and rear OptiveoTM system: at the front of the vehicle,
a state-of-the-art, highly sensitive compact camera positioned
behind the rearview mirror provides a permanent view of
the road and fulfils several functions, notably the automatic
switching between full-beam and dipped headlamps, the
lane departure warning system, infrared night vision and the
automatic detection of speed restrictions, which recognizes
all speed restriction signs and informs the driver of current
speed limits via an eye-level display. At the rear, the camera
is integrated into the tailgate handle and provides wide-angle
images of the area behind the vehicle. The camera, combined
with park assist sensors, enables the system to display distances
between the vehicle and any obstacles. The system is equipped
with an integrated heating and cleaning module and operates
under all weather conditions.
Switches & Detection Systems develop and manufacture the
following product ranges:
Detection systems:
ultrasound sensors;
radars;
cameras positioned at the front or rear of the vehicle.
Switches:
window-lift and seat adjustment controls and console
switches;
top column modules.
Engine sensors:
temperature sensors (coolant or gearbox);
engine and transmission position sensor;
oil management sensors.
Steering and top column sensors:
angle sensors;
torque sensors.
2.1.2. Lighting Systems
The role of the Lighting Systems Product Family is to improve
driver visibility and clearly indicate vehicle position and changes
in vehicle direction or speed, in all weather conditions. Headlamps
and rear lamps are also key design features, playing an increasingly
important role in automakers’ efforts to differentiate the styling
of their new models.
In 2006, Lighting Systems contributed the following innovative
systems to the Driving Assistance Domain:
directional lighting, which greatly improves visibility in bends
by adjusting the headlamp beam (fixed or moving);
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the night vision system, Xtravue™, which offers drivers
three times the level of standard visibility without a dazzling
effect, using infrared technology; this infrared active night
vision system enables drivers to drive using dipped headlamps
while enjoying visibility equivalent to driving with full-beam
headlamps;
LED front and rear lighting and signaling technologies,
which offer high-performance solutions and innovative designs
at the front and rear of the vehicle;
XLEDTM adaptive headlamps: xenon directional lighting
associated with LED modules featuring directional lighting
functions and automatic additional lighting on highways, to
offer optimal visibility (up to 90% better than halogen lamps)
depending on driving conditions. As well as their low energy
consumption and record lifespan, LEDs contribute to innovative
vehicle design;
Adaptive rear lights with MicroOpticsTM technology: the
uniform light surfaces achieved using this LED technology
offers not only optimal visibility but also a wide range of design
options. The warning signals for each situation (fog, sudden
braking, reversing, oncoming vehicles, opening doors) inform
drivers in following vehicles and help prevent accidents.
The Lighting Systems range also covers:
main headlamps (halogen, xenon and LED);
foglights;
DRL daytime lamps;
leveling devices and lamp wipers;
rear lighting including LED rear lamps and center high-mounted
stop lamps;
cigar lighters.
2.1.3. Wiper Systems
As a contributor to the Driving Assistance Domain, the Wiper
Systems Product Family offers windshield and rear window
wiping solutions to give the driver perfect visibility in all weather
conditions, for both the original equipment sector and the
aftermarket. These solutions combine the latest innovations in
terms of technology and design.
In 2006, Valeo Wiper Systems continued to develop new products
including:
front and rear ultra-flat wipers: the ultra-flat wiper systems
combine elegance and exceptional performance. Their unique
design, optimal aerodynamic form and light weight are a tried-
and-tested combination that is greatly in demand;
a new generation of XL ultra-flat blades, which provide excellent
wiping quality on large windshields and are increasingly fitted
on MPVs, was launched during the year;
these wipers, using electronic front motors, are simple to fit
and allow great freedom of design for automakers;
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2006 Reference document - VALEO 13
ACTiviTy 1The Group
a new rear motor using a technology that reduces mass,
improves acoustic performance and reduces costs, was also
developed in 2006;
heated wash systems.
The Wiper Systems Product Family includes:
arms;
blades;
linkages;
motors;
washing systems;
front and rear wiping systems integrating other functions such
as stop lights and latches.
2.2. Powertrain Efficiency
This Domain devises systems for enhancing vehicle performance
and driving pleasure while minimizing fuel consumption
and pollutant emissions. Five Product Families contribute in
particular to developments in this Domain: Engine Management
Systems, Electrical Systems, Engine Cooling, Compressors and
Transmissions.
2.2.1. Engine Management Systems
This Product Family was created following Valeo’s takeover of
the Johnson Controls’ Engine Electronics Division (JCEED) in
March 2005.
By improving the specific performances of the engine, electronic
management systems reduce the environmental impact of
vehicles while enhancing the driving experiencing and enriching
the Powertrain Efficiency Domain offering.
Valeo Engine Management Systems focused particularly on the
following areas in 2006:
in the emissions control domain, a compact exhaust gas
recirculation system, integrated at the intake stage, for Euro
6 gasoline and diesel engines, is currently being developed
using an innovative architecture. This system reduces fuel
consumption in turbo gasoline engines and very significantly
reduces the emission of pollutant gases by diesel engines;
the development of Smart valve Actuation technology, also
known as the “Camless engine”, which was pursued and
supported by several major automakers. The technology used
in this system represents a considerable advance in gasoline
engines as it reduces consumption by 15-20% in mixed driving
cycles, and also reduces pollutant emissions. The system also
offers users an improved performance and a more comfortable
driving experience.
Other key products in the Engine Management Systems Product
Family are as follows:
complete engine management systems for gasoline and diesel
engines;
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engine control units;
electric motor drives;
emission control systems and components;
ignition components;
injectors;
sensors.
2.2.2. Electrical Systems
The role of the Electrical Systems Product Family involves the
generation and management of electrical energy, from starting
the engine to vehicle powertrain, for enhanced comfort, reduced
fuel consumption and pollutant emissions.
In 2004, it launched the StARS micro-hybrid system on the
market; this system stops the engine when the vehicle comes
to a halt and restarts it immediately and silently when the
driver releases the brake, giving fuel savings of up to 20%
in urban situations. This system was later developed further,
notably with the addition of the function to recover kinetic
energy during braking, which improves fuel savings by a further
5-10%.
Other products in the Electrical Systems Family include:
starters;
alternators;
electrical energy management systems;
renovated alternators, starters, and compressors for the
aftermarket;
electromagnetic retarders for trucks and buses.
2.2.3. Engine Cooling
This Product Family develops and manufactures components
and modules for a full range of engine and transmission cooling
functions, with a view to reducing pollution and fuel consumption,
and enhancing passenger comfort.
In 2006, the Engine Cooling team focused on the following
innovations in particular:
the UltimateCoolingTM concept, based on the principle of a
single coolant system instead of running all fluids to exchangers
at the front end of the vehicle, which both improves engine
performance and reduces fuel consumption. Valeo has
undertaken several development projets on this architecture
in partnership with vehicle manufacturers in Europe, the United
States and Japan;
in the run-up to phase 2 of the “pedestrian protection”
regulation in Europe, due to come into force in 2010, specific
solutions have been developed in terms of impact and energy
absorption. Combined with UltimateCoolingTM, these enable
automakers to adapt to the new regulations without needing
to change the vehicle style;
with regard to the new European regulation prohibiting the use
of the refrigerant gas R134A on vehicles entering production
as of 2011, a new range of exchangers compatible with
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the new CO2 refrigerant fluid (replacing R134A) has been
developed. In addition, Valeo is assessing alternative refrigerants
and their impact on current systems;
ThemisTM, the electronic engine cooling system, is in
development for the first mass production applications, with
the expansion of the valve range to cover all engine types. The
advantages of this system in terms of reduced consumption and
improved comfort have been recognized by manufacturers;
the development of engine intake modules integrating turbo
exchangers, now water cooled, directly into the engine intake
collectors, with the benefit of improved acceleration and engine
performance.
Further Engine Cooling products include:
thermal management systems for powertrains;
cooling modules;
condensors;
evaporators;
heater cores;
charge air coolers;
fuel coolers;
exchangers of oil;
fan/motor systems;
charge air cooler modules;
front end modules.
2.2.4. Compressors
The role of this Product Family, developed in 2005 following
the purchase by Valeo of the remaining 50% share in the Zexel
Valeo Climate Control joint venture, is to develop and produce
compressors for domestic air-conditioning systems.
The R744 Compressor is a key component in the next
generation of air-conditioning systems which will use the
natural and environmentally-friendly CO2 coolant.
This Product Family also develops and produces the following
products:
pallet compressors;
fixed-cylinder compressors;
variable-cylinder compressors.
2.2.5. Transmissions
This Product Family works on behalf of the Powertrain Efficiency
Domain to develop and produce systems that transfer engine
power to the transmissions of passenger cars and industrial
vehicles. The solutions it offers incorporate innovative systems
that dampen noise, vibrations and harshness. This Product Family
is present in all major markets in both the original equipment and
aftermarket segments.
The Transmissions Product Family contributes to the Powertrain
Efficiency Domain through innovations such as:
the dual mass flywheel, which improves driving comfort and
minimizes nuisance caused by sound and vibrations created
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when using the clutch and which make changing gear tiresome;
in 2006, Valeo Transmissions worked towards developing a
system that could also be made available to the aftermarket.
G5 clutch facings, the first range of “green” clutch facings,
which anticipate developments to European environmental
legislation and enable Valeo production sites to considerably
reduce atmospheric emissions and improve working
conditions.
Other products produced by the Transmissions Family include:
cover assemblies;
discs;
clutch facings;
release bearings;
hydraulic clutch actuators;
flexible flywheels;
systems for automated manual transmissions;
torque converters;
lock-up range.
2.3. Comfort Enhancement
The Comfort Enhancement Domain aims to facilitate vehicle use
and improve vehicle comfort. This covers all phases of vehicle
use: approach, access, ignition, driving and exiting. The four
Product Families which work in synergy to develop solutions for
this Domain are Security Systems, Switches & Detection Systems,
Climate Control, and Electronics & Connective Systems.
2.3.1. Security Systems
This Product Family develops and manufactures systems that
guarantee authorized, secure and comfortable access to vehicles
in all circumstances, while ensuring maximum protection
against theft. It also offers ergonomic solutions for the Comfort
Enhancement Domain.
During 2006, Security Systems launched:
the Smart Car Key, a new generation of hands-free card.
This intelligent and interactive identifier offers drivers greater
comfort, with totally new features. In addition to keyless locking,
the user can now view real-time vehicle data (e.g. fuel level,
tire pressure, cabin temperature, headlamp status) on an LCD
or organic LED screen, and can also remotely activate the cabin
ventilation system, automatically transfer useful data such as
destination details and MP3 files from a home computer to the
vehicle, and memorize and activate personal settings such as
driving seat and rearview mirror positions;
the 'Tuning' business developed with handles and matching
keys enables the user to personalize their vehicle in a
completely new way, in terms of patterns and colors, without
altering shapes or original materials
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Security Systems also develops and produces the following
ranges:
keyless entry and start system;
powered opening/closure systems (for sliding doors and
liftgates);
radio-frequency remote controls and receivers;
transponder-based immobilizer systems;
steering column locks (mechanical and electrical);
handles;
keys and locks;
latch sets.
2.3.2. Switches & Detection Systems
This Product Family, which contributes to the Driving Assistance
Domain (see paragraph 2.1.1), also develops solutions for Comfort
Enhancement:
e-media is a multifunctional control interface that reduces
the number of switches on the center console and improves
ergonomics for the driver;
“Fixed cushion” steering wheel controls is a system which
brings all controls for comfort enhancement and driving
assistance within easy reach, on the edge of a fixed central
cushion, thus improving cockpit ergonomics and reinforcing
the effectiveness of the driver airbag.
2.3.3. Climate Control
This Product Family offers intelligent heating, ventilation and air
conditioning (HVAC) systems that enhance individual comfort for
vehicle occupants, in all circumstances, while limiting energy
consumption.
In 2006, Climate Control developments were particularly focused
on the following systems and technologies:
by replacing the refrigerant HFC134a with a natural gas called
R744, the new climate control systems developed by Valeo are
kinder to the environment and anticipate European regulations
due to come into force in 2011, which will impose the use of
environmentally-friendly refrigerants for all new vehicle types.
With a much lower impact on global warming than systems
using HFC134a, the new solutions represent a significant
technological advance. The system using R744 also offers the
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major advantage of eliminating the recycling of the fluid at the
end of the vehicle’s lifetime;
the Thermeo thermal comfort module for rear passengers
integrates thermo-electric technology to provide air conditioning
and heating to the rear seats. The installation of this module,
located in the overhead light, is simple, and can be done by
local dealers because there are no refrigerant pipes to be
installed;
low consumption air conditioning system, software
module for optimizing the performance of new generation
air-conditioning systems and reducing energy consumption;
Valeo Climate Control developed a whole new range of air
quality products for the OEM and the aftermarket, aimed at
protecting passengers notably from ultrafine diesel particles,
and improving their wellbeing with, for example, the anti-
allergen filter, the vitamin C filter and products to eliminate bad
odors associated with air conditioning. Valeo also developed
cabin purification modules based on ionization technology.
The Climate Control Product Family comprises around four product
lines:
HVAC systems and modules;
cabin comfort controls (control panels);
decentralized interior comfort modules (rear air-conditioning
device, booster, additional comfort modules);
air quality products (air filtration and purification systems).
2.3.4. Electronics & Connective Systems
This Product Family contributes to the Comfort Enhancement Domain
by developing and producing electrical and electronic distribution
systems and related components. Innovations developed include
solutions for optimizing battery management, including
compact current sensors or power switches.
The range covered by this Product Family includes:
wiring harnesses for power and data transmission;
body controllers;
electric distribution controllers under the engine cover;
electric distribution boxes;
electrical energy management components.
This Product Family also provides support for the Driving Assistance
and Powertrain Efficiency Domains.
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3. Aftermarket products and services
Valeo Service consists of two activities whose roles are to
supply original equipment spares to automakers and universal
market spares to the independent aftermarket (see paragraph
1.2 Organization: Aftermarket). It offers Aftermarket customers
a wide range of products and services designed to increase
the effectiveness of repair specialists. The offering responds to
increased customer demands, going beyond simply supplying
parts, to include ever more comprehensive and optimized services
and technical skills (catalogues, training, diagnostic and sales
tools).
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In 2006 Valeo Service focused its efforts on improving customer
satisfaction through the following objectives:
the organization of valeo Service into 5 transversal markets,
each covering a different area of expertise to better reflect
customer business: repair, maintenance, crash, post-equipment,
and heavy duty;
logistics excellence through improved service levels:
working in partnership with customers allows proximity stocks
in each country and improved stock coverage using flexible
delivery methods.
the total quality of products and services: with its valeorigin
label, Valeo Service guarantees the quality and origin of original
equipment spares, thanks to the expertise and know-how of
Valeo in the OEM. Total quality also relates to services: great
flexibility in order taking to reflect customer needs, telephone
technical support, comprehensive training programs and
computerized sales tools.
Valeo Service extended and expanded its range of products and
services in 2006 through:
the launch of more than 2,500 new product references,
increasing the coverage for all product lines, with a particular
emphasis on condensers and radiators;
doubling the number of references for the 4-part clutch kit;
the geographic extension of the wiper blade range under the
Michelin license to six additional European countries;
reinforcement of the diagnostic tool range (Climtest 2, Airtest,
Clim On Line);
the speeding up of product availability for the OEM to make
them more rapidly available on the original equipment spares
market;
optimization of the support service for the Valeo Clim Service
network;
continual updating of paper (more than 20 new editions in
2006), multimedia and online catalogues;
the development of Internet services to improve customer
service (downloadable price lists, customer Extranet) and the
launch of a new website in Eastern Europe, Russia and Portugal
in local languages;
geographical expansion of the eXponentia training program,
which keeps repair professionals continually up-to-date with
ever more numerous and complex developments in current
vehicle technologies;
improved sales efficiency: the French and Spanish Divisions
have introduced a Sales Force Automation service that tracks
sales in real time and accelerates the launch of promotional
drives;
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Valeo Service also updated its packaging in 2006. In addition to
the new design, this packaging offers innovative functions to
fight counterfeiting and incorporates indelible ink. The Valeorigin
quality label appears on all boxes. They are easier to use, and
feature standardized labels with an easier to read reference
number and clearer diagrams.
Valeo Service offers 176 product ranges covering 12 product
functions for light, commercial and industrial vehicles and trucks.
It is organized as follows:
wiper systems: blades, arms, linkages and front and rear wiper
motors, positioned according to brand (Valeo Marchal, PJ, SWF,
Cibié, MDD, …);
transmissions: traditional 2 and 3 piece kits, four-piece kits
with rigid flywheel, hydraulic components (three-piece kit with
hydraulic release bearings as well as hydraulic release bearings
available separately); dual mass flywheel, flexible flywheel;
lighting and signaling: main headlamps, Xenon headlamps,
auxiliary headlamps, (including Xenon long-range and fog
lamps), daytime running lights, rear direction indicators, lamps,
work lamps;
climate control: products belonging to the Air Quality range
(cabin filters Clim Filter, ClimPur), compressors, condensers, filter
driers, heaters and blowers, diagnostic and maintenance tools,
Climtest 2 diagnostic and maintenance tools, AirTest, CLIMFILL,
regulation parts;
engine cooling: heat exchangers, water pumps,
thermocontacts, thermostats, EGR valves, cooling fluids, particle
filter exchangers;
electrical systems: starters and alternators (new and
renovated), a wide range of spare parts;
retrofit lighting: park assist systems (beep&park), lighting
tuning (laser engraved motifs for front and rear lights,
headlamps with color masks, phosphorescent masks, LED rear
lights), fuel caps;
electrical accessories: window lifts, comfort and pre-heating
timers, relays, cigar lights and multifunctional sockets;
security systems: steering column locks, keys, locks, and fuel
caps;
switches & detection systems: steering column controls and
switches, door handles, actuators;
brake products: brake pads, discs and shoes, rear brake kits,
hydraulic components, brake fluid;
ignition: pencil ignition coils, ignition rails, integrated ignition
modules, spark and glow plugs and a wide range of spare parts
for ignition systems.
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4. Functions
4.1. Human Resources function
The Valeo HR function adopts a proactive approach to
accompany the Group’s global growth, by developing
universal guidelines which take into account specific local
features and the market context.
With an overall HR policy based on empowering its 69,800
employees in the Group (at December 31, 2006) working in
26 different countries, the Group strives to provide all staff with
the same learning opportunities so that they can enhance their
efficiency, operational performance and development potential.
Valeo is evolving in a particularly competitive market: involving
all employees and updating and developing their skills are
essential to the Group’s progress. Valeo is particularly attentive to
all factors that contribute to motivating employees in their work
and sustaining dynamic collaboration between the teams.
The Group offers each of its employees genuine career prospects.
Internal mobility is a key factor in developing Valeo’s own top
quality future leaders.
In 2006, Valeo recruited 15,674 employees throughout the world,
including 2,129 engineers and managers, bringing new skills to
the Group.
4.1.1. Management development
The skills management system is a comprehensive range of
procedures and tools available to managers to drive the effective
development of Valeo employees. These systems are used to
recruit, develop and motivate the necessary human resources,
not just in their day-to-day work but also to achieve the Group’s
strategic objectives.
The three major constituents of the management development
strategy are external recruitment, which also includes relations
with educational establishments, internal mobility and personal
development, and lastly, remuneration and benefits.
4.1.1.1. Recruitment and relations with schools and
universities
Recruiting the best talent is a key factor of Valeo’s success.
Qualified teams ensure Valeo can offer its customers around the
world value-added services in terms of innovation, total quality
and competitive solutions and services.
To ensure that recruitment, both internal and external, is managed
coherently and professionally, all managers are trained using a
recruitment kit made available to them. This kit, created in 2006,
brings together in a single document all the existing tools, such
as the Employer Brand, developed in 2002, the Internal Mobility
Charter and the Valeo Competences system, launch in 2004. A
Recruitment Guide explaining the Group’s operating culture and
the key messages to communicate to applicants, is the main
element of the recruitment kit. By offering a standard recruitment
policy based on objective selection criteria, the Recruitment Guide
helps to promote diversity at Valeo and to eliminate all forms of
discrimination.
Valeo has also continued and strengthened its relations with higher
education institutes, in particular by developing partnerships with
foreign universities and schools recognized at an international
level. In 2006, the Group took part in many events to make contact
with future graduates of these establishments, for example the
ATUGE forum in France and Tunisia, the Franco-German forum
in Strasbourg, the Best forum in Krakow (Poland), “Careers in
Europe” in Berlin (Germany), Yes-Expo in Detroit (United States),
the ATHENS forum in Paris (France) and special day events
organized with universities in Wuhan, Nanjing and Changchun
(China).
In France, Valeo has intensified relations with a number of
partner schools and universities, such as the Ecole Centrale de
Paris, Supélec, Université de Technologie de Compiègne (UTC),
Ecoles des Mines de Douai, ENSIETA in Brest and ECE, and has
concluded a framework agreement with ESIGELEC. In addition,
Valeo sponsors the “Elles Bougent” association which promotes
transport careers for female secondary school students.
Finally, in 2006 Valeo sponsored the UTC promotion and helped
create a postgraduate DESS degree in logistics at IHEC Tunis
(Tunisia).
4.1.1.2. internal mobility and personal development
To offer attractive career prospects to the 12,000 engineers and
managers employed by Valeo, the Group’s policy demands that
at least 3 out of 4 positions are filled internally. These career
prospects are formalized through the creation, each year, of a
Succession & Development Plan to identify the next stages in
the career development of each engineer and manager. The
plan is implemented via a review committee responsible for
making decisions regarding internal job applications. In order to
prepare employees for success in the next stage of their career,
Valeo standardized in 2006 an “individual development plan”
format comparing skills acquired with skills required for the next
stage, allowing very detailed individual development plans to be
drawn up. The plan is based on the “3 E” approach, which favors
structured experience and first-hand knowledge in addition to
more traditional training and education. Using these tools, more
than 2,000 engineers and managers benefited from career
development actions in 2006.
To encourage the spread of policies, cultures and methodologies,
and to offer international opportunities, the Group must be able
to expatriate around 100 experienced managers every year. In
order to be effective, Valeo’s international policy must be both
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competitive on the employment market and must also contribute
to cutting costs. In 2006, following research on the best practice
on the market, Valeo’s policy was completely overhauled in order
to meet the needs of employees and their families and in the
general context of cost cutting.
4.1.1.3. Remuneration and benefits
The Group constantly monitors the employment market in order
to remain competitive so that it can motivate and retain its talent
and adapt its practices as required. With its global presence, which
is constantly evolving and encompassing new territories, such
as Russia and Iran, Valeo needs to understand the relevant local
practices rapidly and propose the appropriate remuneration in
order to build up local teams. In 2006, for example, the Group
introduced a long-term reward system to retain its key managers
and engineers in China. A rigorous method to ensure that the
Group remains competitive on the volatile employment market
in Mexico, Poland, the Czech Republic and Thailand, was also
rolled out in 2006.
4.1.2. Training
Training plays a major role in the successful integration of new
entities and organizational changes. It enables individuals to
acquire the fundamental principles of Valeo culture: in-house
terminology, working methods and shared working tools.
Moreover, in the spirit of the recent training reforms in France,
Valeo encourages each employee to take a proactive role in
developing their professional skills. During a career appraisal
(compulsory in France and extended to all countries in which the
Group operates), each employee is given an opportunity for a
valuable discussion with their line manager. Above and beyond
essential training activity for their current position, the objective
is to gain a long-term vision, clarify the employee’s career goals
and their potential to satisfy Group requirements. This exchange
allows us to define the steps and resources for implementation,
including the French individual training entitlement (DIF, or Droit
Individuel à la Formation). In 2006, 13% (2,184) of employees
with the right to DIF applied for the scheme, and were accepted.
2% of demands (53 employees) were refused or had to re-apply
in 2007.
To provide a more effective and personalized solution, Valeo
prioritizes training which combines different learning methods:
conventional class-based training, skills appraisals, coaching, role
play and computer-assisted self-training. For the latter category,
ValeoC@mpus, the Group’s online university, is open to all staff.
Employees are able to access training at their own pace, with
assistance from HR staff or tutors. Training covers a wide variety
of areas including languages, office systems, management, and
personal efficiency, as well as the Valeo culture, products and
technical processes. In 2006, 14,700 employees (compared to
13,000 in 2005) received around 68,600 hours of online training
(compared to 60,000 in 2005). Several functional departments
have adopted this training method and are developing their
own modules. The Programs and Projects, R&D and Intellectual
Property departments have all created online courses, which
can be accessed at any time by any member of their networks,
irrespective of the country in which they work. A growing number
of versions of these basic training modules (e.g. 5 Axes, Valeo
Project Management Basics) have been developed, in German,
Chinese, Japanese, Polish and Portuguese.
The Training Department has software that enables it to rapidly
produce content in-house.
4.1.3. Code of Ethics
Valeo joined the UN Global Compact Program in 2003 and fully
supports its principles of social and corporate responsibility. In
2006, Valeo continued its efforts in this area, by further reinforcing
its Code of Ethics. Regulations included in the Code must be
followed by all Group employees, even where commitments
exceed the requirements of local legislation in certain areas, e.g.
child labor.
The Code of Ethics has been translated into the 19 languages used
by the Group and can be accessed by all individuals working at
Valeo, whether Group employees or not, who are required to
follow all the regulations, without exception.
The new Code of Ethics underlines the respect for fundamental
rights, covering issues such as child labor, disabled workers,
discrimination, harassment and health and safety in the workplace.
It also demonstrates the Group’s commitment to sustainable
development: the environment, human resources, social
dialogue and freedom of expression, as well as each employee’s
individual development. It covers the Group’s commitments
to society (professional training, new employment assistance,
reindustrialization), business conduct and professional conduct.
Finally, the Code states that Valeo service-providers, consultants
and subcontractors are obliged to act in accordance with the
ethical rules outlined by the Group.
4.1.4. Industrial Relations
Valeo is firmly committed to a forward-looking employment and
skills management policy.
In view of the ongoing necessity to rationalize its industrial base,
the Group actively seeks solutions which will provide alternative
jobs for employees affected: transfers within the Group, individual
and collective external redeployment, new employers to take
over sites in question, the reindustrialization of employment
regions and local economic development initiatives.
Employee representatives are regularly informed and consulted
on these operations.
The Group’s social indicators can be consulted in the “Social
indicators” section in Chapter 2 of the Management Report.
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4.2. Risk Management, insurance, Environment, Health and Safety
4.2.1. Risk management and Insurance
Valeo’s risk management policy is founded on the basis of
rigorous procedures and management systems for improving
performance.
The Valeo approach, applied systematically at all Valeo sites,
can be summarized as follows: respecting obligations imposed
by national legislation as well as those defined by Group policy
(which exceed the requirements of national regulations in many
areas), as well as identifying risks, evaluating their impacts, setting
objectives and implementing action plans to reduce – or where
possible to eliminate – risks.
All procedures regarding health and safety, building security, the
environment and the protection of knowledge and expertise are
detailed in the Risk Management Manual, which is updated on
a regular basis. The Group also produces an Insurance Manual,
updated on an annual basis, providing comprehensive information
on risk coverage and managing insurance programs.
Clearly identified risks for each site. To achieve its objectives
and bring risk levels down to zero, Valeo requires continuous
visibility. Each site is subject to a full audit every three years
at most, covering the environment, health, safety at work
and the protection and security of buildings. This audit is
carried out by external consultants, in accordance with local
obligations, Group policy and good practice. It provides useful,
detailed information—especially with regard to environmental
concerns—on site activity, the surrounding area and the natural
environment: geology, seismic risks, flood plains, etc. Actions to
be implemented and associated action plans are established on
the basis of these audits.
Site action plans are communicated twice yearly at the Group
level, providing the Risk, Insurance and Environment Department
with precise and comprehensive information for evaluating the
performance of individual sites. Each site is graded on an annual
basis, based on factual criteria.
4.2.2. Environment
Environmental protection demands a number of initiatives which
are, by definition, long-term. Valeo has been applying such
initiatives for more than 15 years.
The objective is of course to prevent environmental pollution,
but also to protect the environment by reducing consumption
of energy and raw materials, reducing or even eliminating the
consumption of dangerous products, reducing waste and achieving
maximum recyclability of all products, and offering an industrial
environment that is both safe and pleasant to work in.
Valeo innovations systematically incorporate an environmental
dimension into their design. This applies to a product throughout
its lifetime: from design to production and use, right up to the
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management of the product at the end of its life. Since 1998,
a group of experts in environmental matters and research and
development from different Valeo Product Families have been
working together to reduce the environmental impacts of
processes and products over their entire lifecycle. This research
group meets regularly to discuss specific topics such as the
elimination of banned and restricted substances or the use of
recycled plastic, for example. At the end of 2006, and to be
pursued in 2007, this working group initiated a process aimed
at coming into line with the 2006 deadlines set by REACH
(Registration Evaluation and Authorization of Chemicals), which
requires manufacturers and importers to produce and offer
to the market substances with no harmful effects on human
health or the environment.
Valeo has also created a reference database of substances
that are banned or restricted in the automotive industry.
Updated again in 2006, this database details the regulations
applicable in the different countries where Valeo operates
and the requirements of its automaker customers concerning
over 600 substances used in the composition of parts and in
manufacturing and repair processes.
To fulfill its progress objectives, Valeo bases its environmental
policy on performance as well as the implementation of a
management system which leads to regularly renewed
certification. This is the case with iSO 14001 certification, the
international standard in terms of environmental management
systems. At the end of 2006, 127 of the Group’s sites had
iSO 14001 certification, compared to 117 at the end of
2005 and 106 at the end of 2004. The aim is for all Valeo sites
to be certified. Newly acquired sites are immediately integrated
into this certification system.
The Generic plant is also a concept developed by Valeo, based
on the work of the HQE (High Quality Environment) association,
the US Green Building and World Bank recommendations. All
new plant construction and refurbishment projects are carried
out according to very detailed specifications. These cover
site selection, plant architecture and construction, employee
working conditions, plant operation, application of regulations,
Valeo risk prevention standards, optimized energy consumption,
and the reduction of emissions and waste. All building and
renovation specifications involving safety, security, health and
the environment are outlined in the Valeo Factory Design
Guide.
4.2.3. Health and Safety
As regards health and safety in the workplace, Valeo has begun
a process for obtaining certification in accordance with the
OHSAS 18001 international standard. Launched in mid-May 2005,
the project aims to obtain certification for all Group sites and in
2006 was a key project for the Group in this domain. At the end
of 2006, 72 sites were certified, compared to 18 at the end
of 2005 and three at the end of 2004. Like the ISO system, this
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health and safety management system is based on continuous
improvement.
The Group’s environmental indicators can be consulted in
the “Environmental Indicators” section in Chapter 2 of the
Management Report.
4.3. industrial Functions
Operational excellence is of critical importance to Valeo. The
controlled expansion of the Group’s business requires the daily
implementation of a basic principle: obtaining cost-effective total
quality first-time, whether this involves methods, manufacture,
projects or purchasing.
The new Technical Department, which brings together the Quality,
Purchasing, Industrial, Projects, Logistics, Information Systems and
Real Estate Departments was set up in 2005 to assist the Group
in pursuing its plan of reducing costs and optimizing quality, as
well as fostering cooperation between these seven functions. Its
objective is to ensure that the 5 Axes are applied in a strict and
disciplined manner.
The 5 Axes methodology is applied around the world, by all
Group employees, in order to deliver “zero defects” to the
customer. The 5 Axes are:
involvement of Personnel: this implies recognizing skills,
enhancing them through training and giving people the means
to carry out their responsibilities. Employees are particularly
encouraged to make suggestions for improvement and participate
actively in the work of autonomous teams.
valeo Production System (vPS): the VPS is designed to improve
the productivity and quality of products and systems. It is a
“pullflow” system based on the flexibility of production resources,
the elimination of all non-productive operations and stopping
production at the first non-quality incident.
Constant innovation: to design innovative, easy-to-manufacture,
high-quality and cost-effective products while reducing
development time, Valeo has set up an organization based on
project teams and the simultaneous engineering of products and
processes.
Supplier integration: allows Valeo to take advantage of suppliers’
ability to innovate and develop productivity plans with them to
improve quality. Valeo sets up close and mutually-beneficial
relationships with a limited number of world-class suppliers and
sustains these relationships in the long term.
Total Quality: in order to meet customer demands in terms of
product and service quality, Total Quality is required throughout
the Group and from its suppliers.
THE 5 AXES
Total Quality
Constant Innovation Supplier Integration
Involvement of Personnel
Production System
FOR CUSTOMER SATISFACTION
The 5 Axes were revised in 2005 and several additions were made
to the previous version, which dated back to 2000. Tools were
devised by the networks in the interim, which have now been
included in the 5 Axes, in particular:
the Quick Response Quality Control (QRQC) approach: any
problem which arises is immediately identified and analyzed
on the spot by the parties involved. Corrective action is defined
and implemented within 24 hours. This approach applies to
all domains: production, quality, purchasing, logistics and risk
management. The latest strategy, launched in 2005, is to apply
the QRQC approach to projects. The idea is to detect potential
problems before projects have even been launched;
the “pull-flow” industrial method allows Valeo to reduce stocks,
improve the productivity of the direct workforce and optimize
deployment of resources and investments, in accordance with
actual customer demand;
the notion of “Kosu”: Kosu is a measure of the resources
required to manufacture a part, which can can be used to
indicate cost performance and for schedule monitoring.
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2006 Reference document - VALEO 21
ACTiviTy 1The Group
For the past ten years internal audits have been used to evaluate
the results of the 5 Axes approach and Valeo has developed its
own standards to analyze and improve the application of each
of the 5 Axes. In 2005, a new set of reference standards,
the v 5000, was launched and deployed at all Valeo sites from
the start of 2006. The standards include in particular a list of ten
obligatory requirements. The standards should ensure that all
Valeo sites focus on the same key priorities.
4.3.1. Purchasing
The role of Valeo’s Purchasing team is to reduce supply costs
through increased sourcing in competitive-cost countries,
implement rigorous selection processes for new suppliers,
apply the total quality and innovation approach to suppliers
and sub-contractors and establish close partnerships with
the most innovative and best performing suppliers. The
Group’s goal is to use its purchasing strategy to gain
competitive edge.
The Purchasing network covers all activities linked to supplier
integration. Suppliers are divided into purchase families
for products and services from raw materials to electronic,
mechanical and plastic components, etc. The eleven Valeo
Product Families each have their own purchasing networks and
there is a separate purchasing team for every Valeo site. The
different Product Families are coordinated by Group Lead Buyers
(based at the sites, these buyers coordinate and harmonize the
purchasing policies of the different Valeo Divisions for which
a given supplier works) and Group Commodity Leaders, lead
buyers who are responsible for strategy, as well as a panel of
suppliers for each purchase family.
Valeo deploys resources to help its suppliers improve their own
quality processes. The Group’s QRQC approach continues to be
implemented to assist suppliers in achieving zero defects. In
2006, 524 suppliers were thus trained in this method.
“Supplier Relationship Management” (SRM) is an essential
tool in the relationship between Valeo and its suppliers. SRM
is a secure extranet resource. Modules such as the incident
Management System and Supplier QCD (reporting back to
suppliers on their performance in terms of quality, cost and
delivery) can be accessed on the extranet, enabling Valeo and
its suppliers to work closely together and share standardized
processes, for example, in order to identify and process quality
incidents rapidly.
By working with fewer suppliers, Valeo is better able to
support them in their quality strategies. The Group has thus
retained the best suppliers in terms of quality, technology and
productivity. Despite the addition of suppliers due to the change
in consolidation scope in 2006 (see Highlights – Strategic
Operations section), the Group optimized the number of its
suppliers by 277 in 2006.
In 2006 Valeo pressed ahead with Convergence, a program
designed to engineer a dramatic cost reduction while
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improving the quality of products produced by our suppliers.
The system uses a specific monitoring tool, the Scorecard which
provides a visual indication of quality performance and cost
reductions implemented. It also provides three-year visibility
of developments and areas of potential productivity, as well as
indicating where such areas have not yet been identified. Each
supplier Scorecard is monitored by a Group Lead Buyer (see
above). In 2006, the Convergence program involved 276 Valeo
suppliers, representing 58% of Group purchasing. The program
is complementary to the VIP program launched in 1999.
Valeo Integrated Partners (VIP) program, covered 98 suppliers
in 2006, including suppliers from competitive-cost countries.
All of the Group’s VIP suppliers were brought together during
a special convention held in Paris in January 2006 to present
the strategies, new products and technologies, business
opportunities and the objectives and priorities for 2006.
In exchange for an undertaking from its suppliers to continuously
improve operational performance, Valeo offers these partners
greater volumes and business opportunities. With the
launch of its new Code of Ethics, Valeo further tightened the
requirements imposed on its suppliers in terms of labor rights
and environmental protection.
Innovating and designing products using different materials and
new architectures can also help reduce costs. Presentations to
identify supplier innovations are organized on a regular basis.
In 2006, contracts relating to innovation and development were
signed with key suppliers.
valeo increased purchasing in low-cost countries. These
purchases represented 33% of total production purchases in
2006 (compared to 26% in 2005). This result was achieved
with the contribution of all Valeo teams as well as those of
Valeo’s APO (Asian Purchasing Office) in Shanghai, which
was significantly strengthened in 2006.
4.3.2. The Valeo Production System and logistics
The role of the Valeo Production System (VPS) is to improve
product quality while at the same time reducing production
costs and long-term assets. At the heart of this strategy
lie the optimization of the industrial footprint and the
deployment of a Total Quality Culture.
In 2006, Valeo continued to implement both its plan to
standardize processes and equipment, using the Kosu approach
to measure the resources required to manufacture a part, and
also its investment optimization strategies. These operational
standards make it possible to capitalize on experience, cut
product development lead times, stabilize new production
lines quickly while avoiding start-up problems, and cut costs
at every stage of the process. All activities are now carried out
using standards that supervisors must ensure are respected and
improved. On the shop floor, performance is monitored in real
time through a concrete analysis of what really happens on the
production line. Problems are identified, immediately processed
and turned into opportunities for improvement. Each operation
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2006 Reference document - VALEO22
ACTiviTy1 The Group
is assessed for its contribution to the added-value of products,
and operations lacking in this respect are eliminated.
The involvement of employees in the process of optimizing
investments was also crucial this year. This approach has
enabled the Group to define new standards, while emphasizing
flexibility and versatility.
The ergonomic design of workstations continued to be improved.
Each workstation is organized around the needs of operators,
who have made significant contributions to improving their
comfort and safety at work. This approach is part of Valeo’s
Occupational Health and Safety policy (see also paragraph 4.2.3
Health & Safety) and helps reduce the number of accidents at
the Group’s production sites.
The specific features of the aftermarket are also taken into
account at Valeo. This market imposes certain limitations on
industrial operations. Products are mainly manufactured using
the same production machines as for original equipment parts.
If necessary, simplified lines designed for small volumes with
low levels of automation can meet the requirements of this
market. Servicing and maintenance of these specific machines
are already in place.
In order to optimize logistics, each Valeo plant is organized
according to product flow. Responsiveness and flexibility
with regard to customers’ requirements are fundamental. In
particular, Valeo employs pull-flow methods to reduce stocks
and simultaneously improve customer service levels. The daily
measuring of service levels is a rule which, little by little, is
extending to our suppliers.
4.3.3. Quality
Quality is a key demand from consumers and automakers.
The cornerstone of Valeo’s 5 Axes methodology, it is an
integral part of the Group’s culture.
Total Quality is not just a question of methodology; it is above all a
state of mind. It therefore it requires the involvement of everyone
at all times and in all circumstances. At Valeo, this approach is the
responsibility of all 69,800 Group employees.
The role of the Quality network is to ensure that everyone is
aware of and understands their individual responsibilities. It
also consists of evaluating problems and requirements in terms
of training support, and of training, supporting and validating
lessons to be retained and shared to avoid any recurrence.
The Valeo Quality network functions on the basis of a
decentralized network and involves each of the 5 Axes. the Quality System Manager validates internal procedures, checks that they are applied properly, and updates them to ensure that they are in line with both internal and external quality standards;
the Project Quality Manager ensures that the quality methodology is duly applied to projects and checks that projects are covered for their entire duration, in accordance with Valeo standards;
the Supplier Quality Manager manages the quality of components delivered, from the project phase right through the product’s lifecycle and assists supplier progress through the implementation of improvement plans;
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the Production Quality Manager ensures that quality-specific tools are properly implemented within the manufacture process and coordinates the deployment of control plans as well as instructions for work. He/she also acts as the “voice of the customer” for all quality incidents to ensure the customer’s total satisfaction.
Valeo has also implemented a program of resident engineers,
to provide optimal customer support. Engineers are no longer
simply assigned to a given customer; they actually go and work
at the customer’s premises. As soon as a problem is detected,
the engineer communicates it to the appropriate people at
Valeo, so that actions can be defined immediately to protect
the customer. At the end of 2006, the Group had 56 resident
engineers; 39 in Europe, 10 in North America, 3 in South
America and 4 in Asia. Among these 56 people, a program of
warranty resident engineers was also deployed, whereby 10
resident engineers joined the customer teams, either at the
head offices or in their warranty management centers.
Reinforcing the Valeo culture involves the mobilization of all
employees, at all levels and is based on:
the San Gen Shugi approach, inspired by Japanese best practices
and based on a concrete analysis of what actually happens
on the shop floor. San Gen Shugi is based on reality: Gen-
ba (where and when a problem arises) Gen-butsu (using the
actual parts involved, whether above or below standard), Gen-
jitsu (with measurable facts). This attitude is founded on both
individual responsibility and teamwork;
the QRQC approach (Quick Response Quality Control) is also
essential. When a problem occurs it is immediately identified
and analyzed by the parties involved. Corrective action is
defined immediately and implemented within 24 hours. In the
event of a quality incident, meetings are held on the spot, to
identify the root cause of the incident and eliminate it for good.
These meetings involve employees from various functions as
required: production, logistics, maintenance, etc.;
in the automotive industry, non-quality of products is expressed
in ppm (the number of defective parts per million parts
produced). In five years, Valeo has reduced the number of
defective parts by a factor of 9. In 2006, non-quality of products
improved by 53% compared to 2005, to reach 15 ppm at the
end of 2006 (compared to 32 at the end of 2005). 63 Valeo
sites (compared to 48 at the end of 2005) were already below
10 ppm at the end of 2006.
4.3.4. Projects
Valeo set up a Projects Department towards the end of 2005 in
order to promote good project management practices, allowing
for the launch of reliable products, free of quality problems and
with guaranteed lifetimes. The role of this function is therefore to
ensure that all Group projects are launched successfully, in terms
of quality, deadlines and cost by implementing rigorous methods
and applying them to the Group’s entire Project network.
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2006 Reference document - VALEO 23
ACTiviTy 1The Group
The Project function covers all domains for developing new
applications, from standard products through to advanced
development projects. Directors, project managers and all
members of their teams work on development projects for
the full spectrum of automakers. Project teams consist of
buyers, sales staff and employees specializing in R&D, quality
and processes.
The methodologies implemented by the Projects function
are taken from the 5 Axes approach. There are four project
categories at Valeo: P3 (creativity), P2 (generic standards), P1
(customer application) and P0 (changes during the production
phase). This policy sets out in detail the innovation process
at Valeo. In 2006 the Valeo project portfolio featured around
690 P0 projects, 1,849 P1 projects and around 600 P2 and P3
projects, giving a total of 3,139 projects. It covers a wide variety
of products from simple sensors, to highly sophisticated systems
or complex integrated modules. The project management
method is described in a document entitled Constant Innovation
Policy.
It also covers Group best practice and details the organization of
teams, resource management guidelines and the development
of systems and modules. Lean Investment techniques are also
used to minimize production costs and maximize team outputs.
The QRQC approach has been adapted to suit the Projects
function and its deployment is currently underway.
4.4. Research and Development
Designing the automobile of tomorrow, creating
technologies and products in accordance with the market,
while anticipating its expectations and driving the market
through innovation: these are the fundamental principles
of Valeo’s Research & Development strategy.
Innovation is, more than ever before, at the heart of the Group’s
development strategy. Valeo engineers seek to anticipate
automakers’ demand for solutions that offer real added-value
for drivers: increased comfort, performance and respect for the
environment. In 2006, research and development expenses
represented 6.6% of sales, and over 562 new patents were
filed.
Faced with an ever more demanding market in terms of new
products, Valeo has developed the processes necessary for
reducing design lead times for new products. Thus, the Group
works upstream to improve the in-house efficiency of projects,
ensuring the appropriateness of actions scheduled and checking
that existing competences correspond to those required. (see
also paragraph 4.3.4 Projects). Major efforts are made to reduce
the cost of research and development, in order to satisfy market
expectations.
Since an innovation’s success is closely linked to its effectiveness
and close conformance to drivers’ expectations, Valeo deploys
a large range of tools, market research, forecasts and testing.
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Surveys are carried out to gain a better understanding of
driver requirements and tests evaluate how new products
are perceived. These tools thus enable Valeo to measure the
extent to which innovations are accepted. The ultimate goal is
to quickly develop and implement innovations which are useful
to the driver and generate growth for Valeo.
To reinforce its technological offering, Valeo also forges
partnerships with top specialists, who are leaders in their
field. In 2006, these efforts focused predominantly on ongoing
partnerships such as the association with Raytheon, the radar
technologies specialist, Jabil Circuit concerning the production of
printed circuit boards, Iteris for lane departure warning systems
and IBM for the development of on-board software.
Valeo also partners a variety of universities and academic
institutions, such as France’s École des Mines, which develops
on-board cameras and pedestrian detection within the Driving
Assistance Domain. The Group also works on simulation
techniques and fluid mechanics with Stanford University in the
United States. A framework agreement was also reached with
ESIGELEC (in France) for the electronics.
Finally, Valeo proposed projects for competitive centers on
themes relating to energy, powertrains, mechatronics, software
and complex systems, but also invested in the governance
of some of these centers (MOVEO, MTA, System@tic), which
enables Valeo to help bring universities, industry and research
closer together.
valeo R&D centers are located throughout the world. The
Group had 68 at the end of 2006, employing nearly 7,000
people. Very high level R&D centers have also been opened
in the developing countries: Valeo has sites dedicated to R&D
in Casablanca (Morocco), Mexico City (Mexico), Prague (Czech
Republic), Wuhan (China), Brazil and Poland. Teams working at
these centers contribute to projects for both the local market
and Group-wide projects.
In 2006, Valeo announced the construction of a second R&D
center in Shanghai in China. This technical center will design
advanced climate control systems for Chinese, Japanese and
European car makers. When fully operational, the new technical
center will accommodate up to 60 highly qualified engineers
and technicians.
4.5. international Affairs
valeo develops, produces and commercializes original
equipment and aftermarket products and systems for all car
and truck manufacturers. The Group’s commercial policy extends
well beyond everyday commercial relations and involves forging
very close partnerships and accompanying their customers in
developing their markets, throughout the world.
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2006 Reference document - VALEO24
ACTiviTy1 The Group
4.5.1. Automaker customers
The Group aims to supply all automakers. Valeo’s top five OEM
customers, representing a total 64.4% of Group sales are (in
alphabetical order) DaimlerChrysler, General Motors, PSA Peugeot-
Citroën, Renault-Nissan, and Volkswagen.
The Group’s biggest customer represents just over 17% of Valeo’s
sales.
Its main original equipment customers are (in alphabetical
order):
BMW;
Chery;
DaimlerChrysler;
Fiat (including Iveco);
Ford Motor Company;
General Motors;
Honda;
Hyundai;
Man;
Mitsubishi;
Navistar;
Paccar;
Porsche;
PSA Peugeot-Citroën;
Renault Nissan;
Scania;
Tata Motors;
Toyota;
Volkswagen Group;
Volvo Trucks.
4.5.2. Operational structure of International Affairs
International Affairs consists of three networks:
National Directorates, which act as veritable ambassadors
for Valeo in given geographical areas. There are nine National
Directorates, based in Germany, North America, South America,
South Korea, China, Spain, Italy, Japan and Poland. The role
of these National Directorates is to promote the Valeo brand
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in these regions, establish close relationships with the key
customers in the regions and to resolve locally any legal or
social problems, where necessary.
Group Customer Directors are the Commercial Directors
responsible for major automaker customers. They number
nine, and each represents Valeo in dealings with a given
manufacturer and coordinate relations with the customer on a
Group-wide basis, for all Product Families.
The Sales and Business Development network, consisting of
eleven Sales Directors each of whom is linked to a Group Product
Family, defines the commercial strategy and is responsible for
day-to-day customer relations.
To underline Valeo’s role with regard to automaker customers
and showcase the Group’s innovations at an early stage in
the vehicle development process, Valeo organizes technical
presentations at the customer’s premises and also “Ride &
Drive” events. These operations give Valeo an opportunity
to demonstrate its latest innovations grouped together into
the various Domains and give guests the chance to test them
for themselves at the wheel of Valeo’s specially-equipped
demonstration vehicles. The events bring together different
stakeholders in a private setting at the automaker’s premises,
including business sector and platform managers, directors of
research & development, product marketing and purchasing.
Valeo is also present at the major international motor shows,
with the goal of developing commercial relations with its
customers.
Valeo has developed a certain number of tools to ensure that
commercial relations with its customers foster a context of
profitable growth and drive markets: the Customer Development
Plan, for example, is a veritable tool for promoting the Group’s
commercial strategy. Customer satisfaction surveys are also
carried out on a regular basis.
Valeo has also developed an entire training module dedicated
to improving the effectiveness of its sales force: the valeo
Sales Academy.
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2006 Reference document - VALEO 25
ACTiviTy 1Geographical presence
Geographical presence
The Group optimizes its industrial footprint on an ongoing
basis in relation to customer demand, markets and labor
costs.
In 2006, Valeo continued the deployment of its sites in Asia, as
part of its globalization strategy and approach to accompanying
its automaker customers. Valeo now has production facilities in
each of the world’s major vehicle assembly regions and new
sites based in countries offering the most competitive production
costs.
Valeo presence by region at 31/12/2006
Production plants
R&D centers
Distribution platforms
Number of employees
Western Europe 56 42 6 31 540
Germany, Belgium, Spain, France, United Kingdom, italy, Portugal, Sweden, Netherlands
Eastern Europe 14 1 2 10 160
Hungary, Poland, Czech Republic, Romania, Slovakia, Turkey
North America 14 12 7 200
USA, Mexico
South America 10 1 3 600
Argentina, Brazil
Asia 26 11 7 500
China, South Korea, india, Japan, Thailand, Malaysia, indonesia, iran
Africa 9 2 9 700
South Africa, Morocco, Tunisia, Egypt
12� 6� � 6� �00
As part of normal operations, the capacity of some sites is currently
being expanded.
At December 31, 2006, the Group’s real estate portfolio (land and
buildings) had a net book value of 565 million euros. It is largely
composed of production sites, mostly wholly owned.
The Group’s equipment is largely made up of technical facilities,
materials and tools. At December 31, 2006, they were stated as
having a net value of 1,016 million euros excluding fixed assets
under construction (see Chapter 3, note 4.3 on Fixed Assets).
Environmental constraints result from the regulations applicable
in this area to all Group establishments (see Environment p. 20,
Industrial and Environmental Risks p. 43 and Environmental
Indicators p. 48).
2006 Reference document - VALEO26
ACTiviTy1 Competitive context
Competitive context
The market for automotive components and systems is
subject to fierce competition, in terms of cost, quality,
service and technology.
For some product lines supplied by the Group on the original
equipment market, Valeo is consistently one of three to five major
suppliers who together represent more than half of the market
(in sales), the remainder being made up of a large number of
regional suppliers:
in several product lines, Valeo competes against the four largest
international automotive suppliers (in alphabetical order):
Robert Bosch, Delphi, Denso and Visteon;
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for certain product lines, such as transmissions, thermal systems
and lighting systems, the leading suppliers include companies
that are smaller or more geographically concentrated, such as
Behr, Hella and Luk, etc.;
the following Product Families are among the world leaders
in each segment (in sales): Transmissions, Climate Control,
Engine Cooling, Wiper Systems, Lighting Systems, and Electrical
Systems. In addition, several products in Switches & Detection
Systems, Electronics & Connective Systems and Security Systems
enjoy other European or regional leadership positions (source:
Valeo).
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Key events in 2006
1. Commercial success
valeo won several new contracts in 2006, which have helped
achieve the goal of increasing the number of valeo products
per vehicle. OE orders came to 1.3 times sales, the highest
level since 2001.
As a leading supplier, Valeo took part in the launch of the
Peugeot 207, assembled at the Poissy site in France, Madrid
in Spain, and Trnava in Slovakia. Twenty product lines from all
three of the Group’s Domains feature on this vehicle from the
PSA Peugeot Citroen Group.
A new contract for the Starter-Alternator Reversible System
(StARS) technology was signed with an European manufacturer,
and mass production is planned for 2007. The FG alternators and
FS starters were a commercial success, resulting in substantial
order-taking from major automakers on all continents.
Valeo Climate Control increased its market share with most
of its customers, notably with the renewal of a platform for
a French automaker, a rear ventilation system for a German
customer and the supply of several complete air conditioning
systems to Asian customers. Lastly, a world first: Valeo fitted
Luc Alphand’s Corvette at the Le Mans 24 Hour Race with an
air conditioning system adapted to the race conditions in order
to reduce driver fatigue.
Valeo Engine Cooling registered major orders for exchangers
and engine cooling modules from a US automaker in Europe
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and in North America. Also, in the light of the tightening of
standards on pollutant emissions, this product family developed
an innovative water cooling system, integrated into an air
intake module, in partnership with a German manufacturer.
When the time came to update one of the main models by a
French manufacturer, Valeo Engine Cooling also won all orders
for its exchangers and engine cooling modules. A first order for
front-end modules was taken in China, and orders for exhaust
gas recirculation systems for coolers were registered in China
and Brazil.
Valeo Transmissions registered its first orders for dual mass
flywheels in Asia and for torque converters in North America.
The DKS compressor by Valeo Compressors was chosen by
Nissan and Mazda in Japan and Ford in North America.
Valeo Electronics & Connective Systems won wiring contracts
for the replacement of a future vehicle in the Seat range, the
replacement of a future utility vehicle by Renault and the
replacement of new designs in the Logan range.
In October 2006, Valeo announced that its new Park4UTM parking
assistance system would equip its first production vehicle—the
VW Touran—in the first half of 2007. This is a world first. Valeo
Switches & Detection Systems also significantly increased its
order-taking with Japanese manufacturers. It also registered
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2006 Reference document - VALEO 2�
ACTiviTy 1Key events in 2006
new orders for the blind spot detection system, with a US
automaker.
At the same time as orders from French manufacturers were
increasing, Valeo Security Systems stepped up its international
development, particularly in Asia, with orders taken in China
from Chinese manufacturers for mechanical and electronic
steering column locks, and latch and handle collections, and
also from the Japanese automaker Nissan for the supply of
latches for a new program, with production planned at Wuxi
(China). In addition, a first order for immobilizers was placed in
India by an Indian manufacturer, and orders placed by Toyota in
Japan rose sharply, particularly for collections of locks, remote
controls, steering column locks and radio frequency receivers.
In Europe, Valeo Security Systems reached a record level of
orders taken with a major European automaker for handles,
locks and latches.
For Valeo Lighting Systems, 2006 was notably marked by a major
order for daytime lighting using innovative LED technology, from
a major European automaker. Xenon technology was used on
the new Nissan Altima in North America by Valeo Sylvania,
a US-based joint venture in this product family. Finally, this
product family boosted its order intake among various Japanese
manufacturers and a German automaker.
The year 2006 was marked by the launch of the first application
of an electronically controlled front motor with integrated
linkage for the front wiper system on the Citroen Picasso, which
will be followed by 2009 by two other programs.
Valeo Engine Management Systems was chosen to supply its
dual-fuel engine management system to Iran Khodro, with
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mass production due to start in 2007. This major automaker
controls 50% of the Iranian automotive market. A new order for
engine-control calculators for the 1.6 liter atmospheric engine
by the Renault-Nissan partnership destined for the Renault
platforms was registered by this product family.
In addition, in terms of emissions control, 2006 was a good
year for order-taking among major European automakers, for
new engines that comply with the Euro 5 standards and for
new markets such as: chokes for the Renault turbo diesel 1.9
liter engine in the future Renault Megane, Laguna and Espace,
and the 2.0 liter for the future Renault Megane, Espace and
Trafic; the EGR modules and dual chokes for the Euro 5 2.0
liter turbo diesel engines for PSA Peugeot Citroen / Ford, for
the replacements of the Peugeot 607, 407, 308 and B58, the
Citroen C4, C5, C6 and C4 Picasso, the Ford Mondeo and Cmax,
and the Volvo S40, XC50 and V50; second generation EGR
valves for Volkswagen’s “common rail” 2.0 liter engines; EGR
gas cooling modules for Nissan, notably for the 2.5 liter diesel
engine in the Navara pick-up and the Pathfinder 4x4.
Thanks to an improved service level, a long-term contract
was signed between Valeo Service and a French automaker
for the development of new technologies in wiper systems,
transmissions and engine cooling for the aftermarket. Valeo
Service also signed other contracts to supply lighting products
in the Accessories range and LED technology for front and rear
lighting to major manufacturers.
An innovative approach with the development of a customer-
specific range saw Valeo Service signing a contract for wiper
blades with Halfords, a major UK chain selling replacement
parts.
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2. Technological innovations
Throughout 2006, Valeo consolidated its position as a major
driver of automotive progress, and demonstrated its ability
to introduce innovations through its three Domains.
2.1. Domains
The Domains were established to promote innovation using
technology and synergies between product families, leading to
the commercialization of global solutions in the fields of safety
(Driving Assistance), the environment (Powertrain Efficiency), and
well-being (Comfort Enhancement).
2.1.1. Driving Assistance
The Park4UTM automatic park assist system automatically
parks a car in less than 15 seconds. Using ultrasound technology,
it makes city driving safer and more comfortable.
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The Blind Spot Detection System contributes to reducing
collisions with unseen vehicles during lane change maneuvers.
This system monitors the blind spot on both sides of the vehicle.
If a moving obstacle, such as another overtaking vehicle, is
present in the blind spot, the driver is alerted through a visible
icon on the outside rearview mirror. This system combines two
areas of expertise: the short-range radar expertise of Valeo and
the in-depth knowledge of radar systems from Raytheon. This
system has been selected as a finalist for the 2007 Automotive
News PACE (“Premier Automobile Suppliers Contributions to
Excellence”) Awards in its product innovation category.
The LanevueTM lane departure system, co-developed
with Iteris, comprises a miniature video camera, which uses
algorithms to monitor the lane markings ahead of the vehicle. If
the driver leaves the lane without indicating, the system alerts
the driver so that (s)he can take corrective action.
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2006 Reference document - VALEO2�
ACTiviTy1 Key events in 2006
valeo actively promoted its v360 demonstrator, a vehicle
equipped with a range of innovative driving assistance systems.
This vehicle demonstrates the successful integration of different
technologies designed to inform, alert, assist, and control.
This role is controlled by systems using various technologies,
including radar, cameras, LEDs, infra-red vision, ultrasound, and
control and power electronics.
2.1.2. Powertrain Efficiency
The StARS micro-hybrid is the first step towards hybridisation.
The system is based on a reversible fan-driven 14V starter-
alternator which acts as both starter and alternator. It consists
of a reversible machine and electronics, which puts the engine
on standby when the vehicle is at a standstill, and when the
driver releases the brake it starts the engine quickly and
silently. This system won a 2006 PACE Award in the European
Products category. Subsequent stages towards hybridization
are in development, notably with the recovery of kinetic
energy by storing energy in super-capacitors when the vehicle
slows down. This innovative solution is being promoted
using a demonstration Volvo V70 turbo diesel fitted with this
technology.
The Smart valve Actuation (SVA) system replaces the
conventional mechanical operation of engine valves with the
cam belt, camshaft and hydraulic cam followers. It reduces fuel
consumption by around 15-20%, and also restricts pollutant
emissions.
The UltimateCoolingTM vehicle thermal architecture is a
revolution in the thermal control of the various engine fluids
and engine peripherals, based on the principle of a single heat
transfer fluid. In addition to improving engine performance, this
system can reduce the space required by the cooling module at
the front of the vehicle by up to 40%. This more compact design
allows for greater freedom in style and for the integration of
pedestrian protection systems.
2.1.3. Comfort Enhancement
Valeo has developed a new generation of hands-free cards.
In addition to providing keyless locking, unlocking and ignition
functions, the new identifier can remotely memorize and
activate personal settings such as driving seat and rearview
mirror positions, and provides, via a screen, a wide range
of data such as fuel level, tire pressure and outside/inside
temperature, which help ensure a safe journey.
Valeo designs environmentally-friendly air conditioning systems.
By replacing the refrigerant HFC134a, which contributes to global
warming, with an alternative fluid or a natural gas called
R744, Valeo’s systems represent a significant technological
step forward, helping protect the environment and anticipating
regulation due to come into force in 2011.
Valeo’s product families have made other contributions to the three
Domains and are covered in more more detail (see Chapter 2.
Domains and Product Families, The Group).
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2.2. Recognition of valeo’s R&D prowess
The Group’s potential for technological innovation continued
to benefit from wide recognition among market players.
The StARS micro-hybrid (Starter-Alternator Reversible System)
won a “Premier Automobile Suppliers Contribtion to Excellence”
(PACE) Award 2006 in the European products category. The
PACE Awards honor “superior innovation through technological
advancement and business performance among automotive
suppliers.” The prizes are awarded in partnership with
Automotive News, Microsoft, SAP and the Transportation
Research Center. This micro-hybrid system is currently available
on the Citroën C2 and C3 Stop&Start, the only one currently
available on the market.
In July, Valeo Climate Control’s air quality system received
the Nissan Global Supplier Award for Innovation.
Valeo won an Automechanika Innovation Award for its Power
Line Communication system in the “Systems” category. The
innovative technology makes it possible to integrate new
equipment while simplifying a vehicle’s electrical architecture.
Electrical power and data are simultaneously transmitted on 12V
cables for “plug & play” integration. This prize was presented
to Valeo during an award ceremony at the opening of the
Automechanika trade show, in September 2006 in Frankfurt.
In its Powertrain Efficiency Domain, Valeo is involved in PSA
Peugeot Citroen’s hybrid/diesel project, one of six projects
approved and financed by the French Innovation Agency, a
governmental organization created in August 2005 with a
total investment budget of 1.7 billion euros in the automotive
domain. The Industrial Innovation Agency also agreed to
invest 61 million euros in the LowCO
2Motion research project :
a 211.6 million euros project over the period 2007-2011,
supporting the joint development of camless technology and
micro-hybrid with regenerative braking technology.
2.3. Collaborations and partnerships
The policy of forming partnerships with the best specialists
in each sector in order to speed up the introduction of new
technologies in automobiles continued, as in previous years:
with Raytheon, the radar expert, Jabil Circuit for the production
of electronic cards, Iteris for lane departure surveillance systems
and IBM for on-board software.
2006 was also the first of a three-year partnership between
Valeo and the French rally racer Luc Alphand, for the All-
Terrain Rally World Cup and the Le Mans Endurance Series.
This partnership is designed to allow Valeo to promote its
image as an innovative company looking for big challenges.
There is a technical aspect to the partnership, Valeo develops
lighting systems, wiping systems, and air-conditioning for the
vehicles in the Mitsubishi Motor Sports Team and Luc Alphand
Aventures. This year of partnership was marked by several Luc
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2006 Reference document - VALEO 2�
ACTiviTy 1Key events in 2006
Alphand victories in all-terrain rallies: he won Dakar 2006 in
Africa, the “Por las Pampas” in Argentina, and in the UAE, the
Dubai Desert Challenge; he was also in winning positions for
the Le Mans Endurance Series.
3. Strategic operations
The acquisitions/disposals strategy is designed to reinforce
its three Domains and increase the organic growth potential
of the Group.
In this context, on June 29, 2006, Valeo announced the creation
of a 50/50 joint venture with its affiliate Ichikoh, one of the
leaders in lighting systems in Japan, with a view, initially, to
manufacturing lighting systems for Japanese automakers based
in China. A new 34,000 m² site in Foshan, near Guangzhou, will
start production in April 2007. At full capacity it will employ a
workforce of 400. This is the Group’s thirteenth joint venture
in China.
At the same time, in order to consolidate its operational facilities
in lighting systems in China, the Group increased from 75%
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to 100% its shareholding in Hubei Valeo Auto Lighting Systems
Co., its other lighting joint venture in this country. Valeo’s lighting
systems units in China benefit from the Wuhan R&D center,
which employs 70 engineers.
The strategy of focusing on three Domains has resulted in
the disposal of Logitec, a logistic business in Japan which was
acquired in 2000 with the climate control businesses of Zexel,
and also in the disposal of Valeo’s entire 14.8% stake in Parrot
for a sum of 38 million euros.
Valeo sold its Motors & Actuators business, considered
non-strategic, to the Japanese group Nidec, for a sum of
142 million euros.
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4. Operational excellence
4.1. Optimizing industrial facilities
Valeo continued to optimize its industrial facilities in order
to support its customers and ensure it has a competitive
cost base.
Valeo Electronics & Connective Systems closed down its
industrial activities at the Czechowice site in Poland. The
closure plan for the Rochester site (Wiper Systems) in the
United States was pursued, as defined and negotiated in 2005.
The deal signed with the IUE-CWA union Local 509 for the
reduction of headcount until closure of the Wiping Systems
plant on July 31, 2008. An information / consultation procedure
relating to the plan to dispose of the business of the joint
venture Valeo Plastic Omnium in Douai was initiated, following
Renault’s decision to change the technical concept for the front-
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end of the vehicle replacing the current Megane and Scenic,
leading to the elimination of the modular concept. The Reims
site (Engine Cooling), the Abbeville site (Security Systems) and
the Amiens site (foundry – Transmissions) in France underwent
major restructuring. The four sites of the Motors & Actuators
product family - Bietigheim (Germany), Santa Perpetua (Spain),
Juarez (Mexico) and Zielonski (Poland) – were sold to Nidec.
The Diadema and Cantareira sites of Valeo Security Systems
were closed, and their activities transferred to the Garulhos
site in Brazil.
Two sites were opened at SeongJu (Transmissions) in South
Korea and at Changchun (Compressors) in China. An R&D
center (Climate Control) was opened in China in July 2006 and
a technical center (Switches & Detection Systems) of nearly
1,000 m² employing more than 50 engineers and technicians
was opened at Veszprem in Hungary, in August 2006.
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2006 Reference document - VALEO30
ACTiviTy1 Key events in 2006
4.2. Supplier integration
In the difficult context of inflation in raw material prices
in 2006, Valeo continued to pursue its policy of selecting
and integrating suppliers as far upstream as possible, to
make them preferred partners in the long term, and to help
reduce costs and allow Valeo to communicate its quality
standards to suppliers.
The Group demonstrated great resistance to the record inflation
in raw material prices by increasing the use of all purchasing
resources available and pursuing its program to reduce the
number of its suppliers. The panel fell by 277 to around 2,728 at
end December 2006, while purchasing volume stood at around
5.1 billion euros. Valeo also pressed ahead with Convergence, a
program designed to engineer a dramatic cost reduction while
improving the quality of products produced by our suppliers.
This program currently includes almost 276 suppliers, i.e. almost
10% of the Group’s suppliers, and 58% of purchasing volume.
The VIP (Valeo integrated partners) program continued in 2006,
with 98 VIP suppliers at the end of the year.
The Group also continued to increase the share of supplies
originating from low-cost countries, which grew from 26% in
2005 to 33% in 2006.
The online purchasing system (reverse bidding) used by Valeo
that allows it to optimize purchasing prices and withstand
price increases, represented a record amount of more than
1 billion euros in reverse bidding in 2006 (compared to 631
million euros in 2005).
4.3. Awards
The quality of Valeo’s products and services was recognized
by its customers and institutional partners, testifying to the
Group’s operational excellence.
The third biggest Chinese manufacturer of heavy-duty trucks,
CNHTC, gave its Strategic Partner Award and its Best Product
Quality Award to NVCC, the Valeo Transmissions Division in
Nanjing.
The Transmissions Division in Bursa (Turkey) won the Best
Supplier Award from Ford Otosan Turkey.
PSA Peugeot Citroen awarded an EcoTech prize for reducing
technical costs to Valeo Electronics & Connective Systems and
its quality prize to Valeo Climate Control for its complete air
conditioning system and control panels.
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Valeo won two Superior Awards for Quality from Toyota Europe
in recognition of the excellent performance of Valeo Lighting
and Valeo Transmissions.
The US Auto Division of Valeo Engine Cooling won Honda’s
Supplier Performance Award.
The Heavy-Duty Division of Valeo Engine Cooling in Jamestown,
USA, received Ford’s Silver World Excellence Award for its
performance in terms of quality, costs and delivery.
The Mexican plant at San Luis Potosi (Engine Cooling) received
a prize from the Volkswagen Group in the Excellence in
Development category.
Valeo Climate Control in Japan was named Best Supplier of the
Year 2005 by Fuji Heavy Industry.
Group Auto Union International awarded its Silver Prize for the
Best Supplier to Valeo Service.
The Engine Cooling and Lighting Systems product families were
named among the 22 best suppliers of the year 2005 by Volvo
Cars.
Hyundai-Kia Motors gave its Management Innovation Supplier
Award to the Korean Division of Valeo Electrical Systems, which
demonstrated industrial excellence through achieving a quality
level of 0 ppm (defective parts per million) in 2006. FVW gave
Valeo Electrical Systems Shanghai in China the 2006 FVW
Excellent Quality Award. The same division was also named
a 2006 Excellent Supplier by Liuzhou Wuling Liuji Dynamical
Co. Ltd.
Valeo Engine Cooling and Valeo Climate Control in Itatiba
(Brazil) were named Best Company To Work For, for the sixth
consecutive time, by Exame magazine.
Valeo Climate Control received the Nissan Aftermarket Product
Development Award for the development of its anti-allergy
filter kit for the aftermarket.
The Front-End Division of Valeo Engine Cooling in Camaçari in
Brazil was named Supplier of the Year by Ford.
The MAIS Award in the Evolution category went to Valeo Service
Brazil as the best manufacturer of replacement parts.
Valeo Service’s “beep & park” park assist system was selected
Product of the Year in the Car category in France.
The Eastern Europe Division of Valeo Service has achieved
superior levels of quality and service for its customer Inter Cars
(members of the ATR group in Poland).
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2006 Reference document - VALEO 31
ACTiviTy 1Recent events and outlook
Recent events and outlook
In December 2006, Valeo announced the signing of a draft
agreement with Ford Motor Company for the acquisition of
the Sheldon Road site in Plymouth, Michigan, which specializes
in the production of climate control systems. This acquisition
is conditional on a new competition agreement being signed
with the United Auto Workers Union.
On March 5, Valeo announced that the French Agency
for Industrial Innovation (AII) had agreed to fund its
LOwCO2MOTIONTM research program to improve the efficiency
of automobile engines and reduce their CO2 emissions, to the
tune of 61 million euros. The AII funding depends on obtaining
approval from the European Commission.
Also on March 5, 2007, the Pardus European Special
Opportunities Master Fund LP announced that on February 27,
2007 it exceeded the 10% threshold of voting rights, and at
March 1, 2007, held 10.57% of the capital and 10.36% of the
voting rights in the Company. In its declaration of intent, the
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Pardus European Special Opportunities Master Fund LP declared
it was not acting in concert with any third party and had no
immediate plans to take over Valeo, whilst reserving its right to
continue buying and selling Valeo shares depending on market
opportunities, and to request the appointment of one or several
persons to Valeo’s Board of Directors.
Then, in a letter dated March 21, 2007, the Pardus European
Special Opportunities Master Fund LP declared it had exceeded,
on that date, the threshold of 12% of the Company’s capital
and voting rights.
Finally, the Board of Directors’ meeting held on March 22,
2007 announced that it had received notice of interest from
an investment fund targeting the Company’s capital. The Board
believed it was in the Group’s interest to give it preliminary and
non-exclusive consideration, whilst at the same time examining
other strategic options.
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2006 Reference document - VALEO32
ACTiviTy1
2006 Reference document - VALEO 33
2ManageMent RepoRt
Accounting methods P. 34
Statement of income P. 34
Main investments over the past three years P. 36
Change in stockholders' equity P. 37
Provisions P. 38
Cash flows and debt P. 39
Commitments P. 39
Remuneration of corporate officers and directors P. 39
Risks and uncertainties P. 41
Information likely to be impacted by a public tender offer P. 43
Claims and litigation P. 44
Outlook P. 44
Subsequent events P. 45
Parent company financial statements P. 45
Environmental Indicators P. 45
Social indicators P. 55
2006 Reference document - VALEO34
MAnAgEMEnt REPORt2 Accounting methods
1. Accounting methods
Pursuant to European Union regulation 1606/2002 of July 19,
2002, the consolidated financial statements have been prepared
in conformity with International Financial Reporting Standards
(IFRS) approved by the European Union.
The Group has elected for early application, respectively as of
January 1, 2004 and 2005, of the two following amendments to
IFRS that are obligatorily applicable as from January 1, 2006:
the amendment to IAS 19 introducing the option to recognize
actuarial gains and losses on defined benefit pension plans in
reserves;
the amendment to IAS 39 relating to hedge accounting of
forecast inter-company transactions.
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New accounting standards that are not yet obligatorily applicable,
that have not been adopted early and that may have an impact
on the Group’s financial statements are as follows:
IFRS 7 "Financial Instruments: Disclosures", applicable as from
January 1, 2007;
IFRS 8 "Operating Segments"; this standard, which has not yet
been approved by the European Union, is obligatorily applicable
as from 2009.
The potential impacts of these two standards on the Group’s
financial statements are currently being analyzed.
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2. Statement of income
Unless otherwise indicated, the comments given below refer to
the data for 2004 and 2005, adjusted as of December 31, 2006
for the contribution of Valeo Motors & Actuators, a non-strategic
activity as defined in note 1.19 of the consolidated financial
statements.
2.1. Review of operations
total operating revenues for the consolidated Group increased
by 2.6% to 10,086 million euros in 2006 from 9,834 million
euros in 2005. Changes in the scope of consolidation (mainly
attributable to the full-year consolidation of Johnson Control Engine
Electronics, Zexel Valeo Climate Control and the climate control
and cooling business in Thailand, as well as the disposal of Zexel
Logitec Company on June 30, 2006) had a positive impact of 1.5%
on total operating revenues. Changes in exchange rates made a
positive contribution of 0.6%. On a like-for-like basis (constant
Group structure and exchange rates), total operating revenues
rose 0.5% over the year, as compared with an estimated 1.2%
rise in the Group's automotive production benchmark (1).
Full-year net sales reached 9,970 million euros, comprising
8,214 million euros from the original equipment segment (82%
of the total) and 1,756 million euros from the aftermarket (18%),
compared to 8,003 million euros (82%) and 1,733 million euros
(18%), respectively, in 2005.
Full-year sales generated in Europe were up 2.3% in 2006 to
6,862 million euros, representing 69% of consolidated sales by
market (unchanged from 2005). Like-for-like sales edged up
0.9%, while light vehicle production in the region advanced by
2.7% (source: J.D. Power).
At 1,325 million euros, Group sales in north America contracted
by 2.9% compared to 2005. On a like-for-like basis, North
American sales retreated 2.7%, consistent with local light vehicle
production (source: J.D. Power). North America accounted for 13%
of consolidated sales in 2006, down from 14% in 2005.
Asia and the Middle East registered sales of 1,246 million euros,
up 7.6% compared to 2005. In Asia, like-for-like sales growth
came in at 3.6%, while local automotive production surged 8.8%
(1) Change in the production of light vehicles in Europe, North America, South America and Asia, estimated by J.D. Power and weighted by each region’s contribution to consolidated sales.
(1) Change in the production of light vehicles in Europe, North America, South America and Asia, estimated by J.D. Power and weighted by each region’s contribution to consolidated sales.
2006 Reference document - VALEO 35
MAnAgEMEnt REPORt 2Statement of income
on the back of strong performances in China (up 26.8%) and Japan
(up 6.1%). Asia and the Middle East contributed 13% of Group
sales, as against 12% in 2005.
Sales generated in South America totaled 468 million euros,
up 9.1% compared to 2005. Like-for-like sales remained stable
year-on-year, while local automotive production grew by 7.7%
(source: J.D. Power). In 2006, South America represented 5% of
consolidated sales (4% in 2005).
2.2 Results
Consolidated gross margin amounted to 1,539 million euros in
2006, down 1.3% on the prior-year figure, and represented 15.4%
of sales versus 16.0% in 2005. Further increases in raw material
prices (notably non-ferrous metals and plastics) accounted for the
equivalent of 0.7% of net sales.
Research and development expenditure (1) reached 661 million
euros (6.6% of total operating revenues) compared to 640 million
euros (6.5%) in 2005. Excluding other operating revenues (mainly
customer contributions to development expenditure), these
expenses represented 5.4% of total operating revenues, down
0.1 percentage point on 2005.
The three Domains (2) accounted for 626 million euros or 94.7%
of R&D expenditure (2.8% higher than in 2005), breaking down
between Driving Assistance (178 million euros, up 1.7%),
Powertrain Efficiency (216 million euros, up 3.3%) and Comfort
Enhancement (232 million euros, up 3.1%).
Selling and administrative expenses totaled 195 million
euros (up 2.1% year-on-year) and 458 million euros (up 1.3%),
respectively. The proportion of selling and administrative expenses
to total operating revenues remained stable.
Taking into account other operating revenues, which amounted
to 116 million euros (98 million euros in 2005), operating margin (3)
came in at 341 million euros, down 8.8% on the 2005 figure
(374 million euros). In 2006, operating margin represented 3.4% of
total operating revenues, compared to 3.8% in the previous year.
Other income and expenses amounted to an net expense of
70 million euros (including 61 million euros in restructuring costs
and asset impairments, and a 14 million euro gain on the disposal
of Zexel Logitec Company), compared to net other expenses of
50 million euros in 2005 (including restructuring costs and asset
impairments totaling 34 million euros).
As a result, consolidated operating income for the year came in
at 271 million euros (2.7% of total operating revenues) compared
to 324 million euros (3.3%) in 2005.
The cost of net debt went from 52 million euros in 2005 to
57 million euros in 2006.
net other financial expenses amounted to 9 million euros in
2006 (52 million in 2005), and include a 24 million euro gain on
the disposal of the Group's interest in Parrot following its stock
market listing.
Income before income taxes came out at 205 million euros in
2006, which was 6.8% lower than the previous year.
Income tax expense was 75 million euros, representing an
effective Group tax rate of 36.6%, compared to 66 million euros
and 30.0%, respectively, in 2005.
Including income from non-strategic activities (36 million
euros, including a post-tax disposal gain of 41 million euros) and
minority interests (5 million euros), net attributable income
totaled 161 million euros, compared to 142 million euros one
year earlier.
Basic earnings per share, computed based on net attributable
income, was 2.10 euros (including 0.47 euro attributable to
income from non-strategic activities) compared with 1.80 euro
in 2005 (including a 0.15 euro loss attributable to non-strategic
activities). Diluted earnings per share for the year amounted to
2.09 euros, compared with 1.79 euro in 2005.
(1) Figures for 2004 to 2006 are now presented net of research tax credits previously recorded under “income taxes” (see note 3.3 to the consolidated financial statements).
(2) The objective of the Domains of Innovation is to foster and support innovation by bringing together different technologies and product
groups in order to propose comprehensive solutions based on safety (Driving Assistance), the environment (Powertrain Efficiency), and comfort (Comfort Enhancement).
(3) Operating income before other income and expenses.
(1) Figures for 2004 to 2006 are now presented net of research tax credits previously recorded under “income taxes” (see note 3.3 to the consolidated financial statements).
(2) The objective of the Domains of Innovation is to foster and support innovation by bringing together different technologies and product
groups in order to propose comprehensive solutions based on safety (Driving Assistance), the environment (Powertrain Efficiency), and comfort (Comfort Enhancement).
(3) Operating income before other income and expenses.
2006 Reference document - VALEO36
MAnAgEMEnt REPORt2 Main investments over the past three years
3. Main investments over the past three years
3.1. 2006
In 2006, investments in property, plant and equipment totaled
494 million euros, representing 4.9% of total operating revenues.
Investments in intangible assets – mainly capitalized development
expenditure – amounted to 165 million euros (1.6% of total
operating revenues). Changes in the scope of consolidation
(essentially the disposals of Zexel Logitec Company and the Valeo
Motors & Actuators business) had a 124 million euro net impact
on income. These disposals fall within the Group's strategy of
sharpening its focus on businesses having reached critical mass
in the three Domains.
3.2. 2005
In 2005, investments in property, plant and equipment
amounted to 441 million euros, or 4.5% of total operating
revenues. Investments in intangible assets – mainly capitalized
development expenditure – totaled 145 million euros (1.5%
of total operating revenues). Acquisition-led growth over the
year absorbed 466 million euros. Valeo implemented targeted
strategic operations aimed at boosting the technological offer
of its Domains and increasing the organic growth potential of its
Product Families. In particular, the acquisition of Johnson Controls
Engine Electronics (effective March 1, 2005) for 316 million euros
considerably boosted the potential of the Group's Powertrain
Efficiency Domain. Similarly, the acquisition (effective April 1,
2005) of the remaining shares held by Bosch in the climate
control and engine cooling businesses in Asia, enhanced the
growth potential of the Group's related activities in the promising
Asian markets, and strengthened its expertise in climate control
compressors, one of the main components of climate control
systems. In 2005, the Group also increased its shareholding in
Ichikoh, one of Japan's leading players in lighting systems, from
22.7% to 28.2%.
3.3. 2004
In 2004, Valeo spent a total of 413 million euros, or 4.5% of
the year's total operating revenues, on acquiring property, plant
and equipment, while investments in intangible assets – mainly
capitalized development expenditure – totaled 122 million euros
(1.3% of total operating revenues). Changes in the scope of
consolidation led to net disbursements of 73 million euros. In
line with its strategic objectives of consolidating its footprint in
Asia, Valeo took control of Shanghai Valeo Automotive Electrical
Systems in China and also increased its shareholdings in its China-
based motors and clutches operations.
2006 Reference document - VALEO 37
MAnAgEMEnt REPORt 2Change in stockholders' equity
4. Change in stockholders' equity
4.1. Stockholders' equity
At December 31, 2006, stockholders' equity including minority
interests increased 35 million to 1,752 million euros, compared
to 1,717 million euros at December 31, 2005, reflecting:
deductions: the payment of 84 million euros in dividends relating
to 2005 and translation adjustments for 69 million euros;
additions: net income for the year of 166 million euros.
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4.2. Share capital
4.2.1. Changes in share capital
The company's share capital went from 77,510,357 shares with
a par value of 3 euros each at December 31, 2005 to 77,580,617
shares with a par value of 3 euros each at December 31, 2006
following the exercise of 69,555 stock subscription options
granting entitlement to 70,260 shares (1).
At December 31, 2006, a maximum of 3,744,050 shares could
be issued on exercise of stock options awarded to the Group's
employees and corporate officers. At that date, all of the
OCEANE bonds were outstanding and were convertible and/or
exchangeable for 10,105,439 shares (2).
4.2.2. treasury shares
At year-end, Valeo held 686,704 of its own shares (0.89% of the
share capital) with a unit value (based on the purchase price) of
33.74 euros. At December 31, 2005, Valeo held 807,704 of its
own shares (1.04% of the share capital).
The number of treasury shares at December 31, 2006 includes:
(i) 617,704 shares to be allocated on the exercise of stock
options; and (ii) 69,000 shares to be used in connection with the
liquidity contract signed with an investment services provider
on April 22, 2004, and as required by the French Association
of Investment Companies (Association Française des Entreprises
d’Investissement) code of ethics.
On the date the liquidity contract was signed, 220,000 Valeo
shares and a sum of 6,600,000 euros were allocated to its
implementation. At December 31, 2006, 69,000 shares and
2,075,401 euros were allocated to the implementation of the
liquidity contract.
Through the investment services provider, in 2006 Valeo
acquired 1,178,396 shares at an average price of 29.53 euros,
and sold 1,299,396 shares at an average price of 29.72 euros.
In 2006, trading and transaction fees incurred within the scope
of the liquidity contract totaled 264,715 euros, compared to
271,615 euros in the previous year.
Market operations were carried out in accordance with the fifth
resolution adopted by shareholders at the General Meeting of
May 17, 2006. They were carried out under the terms of the
liquidity contract set up with an investment services provider, with
a view to boosting the liquidity of Valeo shares and stabilizing
their listed price.
4.2.3. Employee shareholdings
At December 31, 2006, employees held 1,041,149 shares (1.34%
of the share capital) under the terms of the Group's savings plans,
either directly or through two investment funds. At the 2005
year-end, employees held 1,418,375 shares, representing 1.83%
of the share capital at that date.
(1) Following the public share buyback offer and simplified public tender offer carried out in May and June 2005, which resulted in Valeo purchasing its own shares at an amount higher than the publicly quoted price, the allocation ratio for stock subscription and purchase options stood at 1.01 share per option.
(1) Following the public share buyback offer and simplified public tender offer carried out in May and June 2005, which resulted in Valeo purchasing its own shares at an amount higher than the publicly quoted price, the allocation ratio for stock subscription and purchase options stood at 1.01 share per option.
(2) Following the public share buyback offer and simplified public tender, and in accordance with applicable regulations and the contract governing the OCEANE bond issue, the conversion/exchange ratio applicable to the bonds was amended from 1 share per bond to 1.013 share per bond.
(2) Following the public share buyback offer and simplified public tender, and in accordance with applicable regulations and the contract governing the OCEANE bond issue, the conversion/exchange ratio applicable to the bonds was amended from 1 share per bond to 1.013 share per bond.
2006 Reference document - VALEO38
MAnAgEMEnt REPORt2 Provisions
4.2.4. transactions carried out by senior executives involving Company shares
The Company was not informed of any transactions falling within the scope of article L.621-18-2 of the French Monetary and Financial
Code (Code monétaire et financier) in 2006.
4.3. Dividends
5. Provisions
The balance sheet at December 31, 2006 showed total provisions of
1,355 million euros (including a non-current portion of 955 million
euros), versus 1,554 million euros (including a non-current portion
of 1,123 million euros) at the previous year-end.
Total provisions for reorganization expenses fell 5 million euros
on the year-earlier period, to 176 million euros.
Provisions for pensions and other employee benefits
totaled 748 million euros at the year-end, 135 million euros
lower than at December 31, 2005. The decrease in this item
reflects (i) the recognition in equity of actuarial gains and
losses for an amount of 27 million euros; (ii) changes in the
scope of consolidation for 27 million euros; and (iii) translation
adjustments for 34 million euros.
Other provisions decreased from 490 million euros at end-2005
to 431 million euros at December 31, 2006.
Dividends per share paid out for the last three years are analyzed in the table below:
Yeargross dividend per share
(In euros)net dividend per share
(In euros)tax credit/allowance
(In euros)total excluding tax credit
(In millions of euros)
2003 1,57 1,05 tax credit of 0.525* 86
2004 na 1.10
Eligible for the 50% tax allowance provided for in article 158-3-2 of the French general tax
Code (Code générale des impôts). 91
2005 na 1.10 84
* Applicable to shareholders eligible for the 50% tax credit.
2006 Reference document - VALEO 39
MAnAgEMEnt REPORt 2Commitments
The Group's main commitments break down as follows at December 31:
(In millions of euros) 2006 2005 2004
Lease commitments 76 79 74
guarantees and deposits 29 30 33
non-cancelable purchase commitments for fixed assets 72 57 58
Other commitments 101 66 49
TOTAL 278 232 214
These commitments are described in note 5.3 to the consolidated financial statements.
6. Cash flows and debt
In 2006, net cash provided by operating activities amounted to
680 million euros (717 million euros in gross operating cash flows)
compared with 820 million euros one year earlier (778 million
euros in gross operating cash flows).
Excluding the impact of changes in the scope of consolidation,
net cash used in investing activities during the year totaled
610 million euros (165 million euros relating to intangible assets
and 494 million relating to property, plant and equipment),
compared to 548 million euros in 2005 (145 million euros relating
to intangible assets and 441 million euros relating to property,
plant and equipment). Changes in the scope of consolidation
resulted in a net inflow of 124 million euros, compared with a
net outflow of 466 million euros in 2005.
Financing activities generated cash outflows of 643 million euros
(including 553 million euros in repayments of long-term debt)
compared to cash inflows of 297 million euros in 2005, which
included a 252 million euro share buyback.
The net decrease in cash and cash equivalents for 2006 amounted
to 448 million euros, compared to a net increase of 131 million
euros one year earlier.
net debt – which is the sum of debt, net current financial
liabilities, short-term loans and bank overdrafts, less cash and cash
equivalents – totaled 968 million euros at the year-end, compared
to 1,080 million euros at December 31, 2005. The consolidated
gearing ratio is therefore 55% at December 31, 2006, compared
to 63% at December 31, 2005.
8. Remuneration of corporate officers and directors
8.1. Corporate officersThe remuneration paid by Valeo to Mr Thierry Morin, Chairman and
CEO, is set by the Board of Directors based on recommendations
provided by the Remuneration Committee. In 2006 the gross fixed
remuneration for the year paid by Valeo to Mr Morin amounted
to 1,519,538 euros (compared to 1,302,395 euros in 2005),
including gross remuneration of 1,500,288 euros (1,284,000 euros
in 2005) and benefits in kind of 19,251 euros (18,395 euros in
2005). Thierry Morin did not receive any variable compensation
in 2006.
Thierry Morin also earned directors’ fees of 35,000 euros in his
capacity as director of Valeo, the same amount as in 2005.
7. Commitments
2006 Reference document - VALEO40
MAnAgEMEnt REPORt2 Remuneration of corporate officers and directors
The gross remuneration received by Mr Morin from companies
controlled by Valeo (within the meaning of article L. 233-16 of the
French Commercial Code) totaled 120,883 euros (118,758 euros
in 2005), made up of directors’ fees of 45,750 euros (unchanged
from 2005) and a contribution of 75,133 euros to a pension fund
(73,008 euros in 2005). Thierry Morin did not receive any benefits
in kind in 2006 from companies controlled by Valeo.
In view of the prohibited periods set down by French stock
exchange regulations, the Board did not award any stock options
or free shares to Mr Morin in 2005. The award was deferred until
March 2006, and comprised 150,000 stock options and 50,000
free shares granted under the following conditions:
the Board set the purchase price for the shares underlying
the stock options at 33.75 euros, it being specified that (i)
50% of the options awarded to Mr Morin are exercisable from
March 3, 2008, and all of the options from March 3, 2009, and
that the shares obtained on exercise of the options may not be
sold before March 3, 2010; and (ii) options not exercised will
become null and void on March 2, 2014;
the definitive vesting date for free shares was set by the Board
of Directors at June 3, 2008 on condition that: (i) Thierry Morin
continues to hold an employment contract or a corporate
officer's position within the Valeo Group at that date; and (ii)
the vesting of 30,000 of the shares awarded are subject to
performance criteria specifying operating margin targets for
2006 and 2007.
In 2006, Mr Morin did not exercise any options awarded in
previous years.
•
•
Mr Morin continues to benefit from the supplementary pension
scheme set up for senior executives who were formerly members
of the Management Board, as agreed by the Supervisory Board
on October 17, 2002. This scheme is designed to top up existing
pension benefits (Social Security, Arrco, Agirc, etc.) to enable
beneficiaries to acquire benefits representing 2% of their final
salary per year of service with the Group. The total amount of
pension benefits may not exceed 60% of a beneficiary’s final
salary. The scheme only applies to beneficiaries who have a
minimum of 15 years' service in the Valeo Group when they
retire and for whom Valeo or one of its subsidiaries was their last
employer at their retirement date.
Finally, should Mr Morin leave the Company following a decision
of the Board of Directors or of his own volition in the event of
a difference of opinion concerning the strategy pursued by the
Board further to a public tender offer, his termination benefits
are set at three times his most recent annual salary, excluding
bonuses. These benefits are not payable in the event that the
Board’s decision is taken on the grounds of gross misconduct in
the performance of his duties.
8.2. DirectorsDirectors receive directors' fees, which are paid every six months.
However, these fees are not paid if directors attend fewer than
half the Board meetings or, if applicable, meetings of committees
formed within the Board of which they are a member, over the
six-month period.
Directors’ fees are allocated to members of the Board of Directors as follows: 20,000 euros for each director and an additional 15,000 euros
for those participating in one of the aforementioned committees.
Total directors' fees paid to Board members in 2006 were 305,000 euros (301,250 euros in 2005), as follows:
(In euros)
thierry Morin 35,000
Carlo De Benedetti -
Pierre-Alain De Smedt 35,000
François grappotte 35,000
Philippe guédon 35,000
Erich Spitz 27,500
Alain Minc 35,000
Véronique Morali 27,500
Jean-Bernard Lafonta 35,000
Yves-André Istel 20,000
Daniel Camus 10,000
Jérôme Contamine 10,000
In 2006, no Board member apart from Thierry Morin (see
pages 160 and 161) and Yves-André Istel received any other
remuneration or benefit. Directors were not awarded stock
subscription or purchase options or free shares, and none of them
hold stock subscription options.
2006 Reference document - VALEO 41
MAnAgEMEnt REPORt 2Risks and uncertainties
9. Risks and uncertainties
9.1. Industrial and environmental risks
9.1.1. Dependence on the automotive sector
The Group's sales are dependent on the level of automotive
production, especially in Europe and North America. Production
itself is affected by a number of factors, especially vehicle stock
levels, consumer confidence, employment trends, disposable
income and interest rates. The volume of production is also
influenced by government initiatives, especially those designed to
encourage vehicle acquisition, sales agreements, new regulations
and social issues such as strikes and walkouts.
Valeo's four main customers account for almost 60% of its OE
sales. In decreasing order of sales these are Renault-Nissan, PSA
Peugeot Citroën, Volkswagen and DaimlerChrysler, each of which
account for between 10% and 20% total sales.
Supply contracts take the form of open orders for all or part of the
equipment needs of a vehicle model, with no volume guarantee.
They are granted directly for the vehicle's individual functions and
generally last for the model's lifespan. Valeo's sales and results can
therefore be impacted by a model's commercial failure and/or by
the Group not being selected to work on the production of a new
range of vehicles. The risks are however broadly diversified, with
Valeo’s wide range of products and services used in the production
of a very large number of vehicles.
9.1.2. Environmental risks
In the various countries in which it operates, the Group's business
is subject to diverse and evolving environmental regulations
which constantly raise the standard of environmental protection.
Valeo's environmental policy is described in the activity report,
and is designed to control and minimize environmental risks as
far as possible.
9.2. Market risks
The Group operates in an international environment in which it
is confronted with market risks, specifically foreign currency risk,
price risk and interest rate risk. It uses derivatives to manage and
reduce its exposure to changes in foreign exchange rates, raw
materials prices and interest rates. In general, foreign currency
risks, price risks in respect of base metals and interest rate risks
for all Group companies are managed centrally by Valeo.
9.2.1. Foreign currency risk
Group entities may bear transaction risk in respect of purchases
or sales transacted in currencies other than their functional
currency. Hedging of subsidiaries’ current and future trading and
investments transactions is generally performed for durations
of less than six months. Subsidiaries principally hedge their
transactions with Valeo, the parent company, which hedges net
Group positions with external counterparts. Based on the net
foreign currency position at year-end, a movement in exchange
rates would only have a minor impact on the Group’s consolidated
financial statements.
The Group is also exposed to foreign currency risk through its
investments in foreign subsidiaries, particularly to risks of a
movement in the exchange rate of a subsidiary’s currency
against the Group’s functional currency. The Group can decide on
a case-by-case basis to hedge the net investment. No derivative
instrument relating to hedging of a net investment is recognized
in the Group balance sheet at December 31, 2006.
9.2.2. Metals risk
The Group's industrial activity requires the use of metals,
particularly non-ferrous metals. The Group hedges its future
purchases of base metals over a period which is generally
less than six months. However, the Group may occasionally
contract hedges for periods longer than six months, or it may
cease hedging certain metals altogether.
The raw materials currently hedged (aluminum, processed
aluminum, copper, zinc and tin) are quoted on official markets. The
Group favors hedging instruments which do not involve the physical
delivery of the underlying commodity. At December 31, 2006, the
2006 Reference document - VALEO42
MAnAgEMEnt REPORt2 Risks and uncertainties
Group’s balance sheet shows an unrealized gain of 6 million euros
with respect to cash flow hedges.
9.2.3. Interest rate risk
The Group uses interest rate swaps to convert exchange rates
on its debt into either a variable or a fixed rate, either as from
origination or during the term of the loan.
At December 31, 2006, 82% of long-term debt is at a fixed rate
(83% at December 31, 2005) and the Group’s financing rate is
4.5%, down by 0.1% on 2005.
For fixed-rate debt, a 1% fall in interest rates would lead to
changes in the fair value of the net position of approximately
45 million euros.
9.2.4. Equity risk
At December 31, 2006, the Group's balance sheet shows cash
and cash equivalents of 618 million euros, (949 million euros
at December 31, 2005). Cash equivalents are comprised of
marketable securities of 97 million euros, including money
market mutual funds invested in very short-term securities
with no capital risk, in line with the Group's cash management
policy. In accordance with applicable accounting standards, these
instruments are measured at market value, which approximates
their carrying amount.
Under IAS 32, treasury stock is deducted from stockholders’ equity
at the date of acquisition. Changes in the value of treasury stock
are not recorded. On disposal, stockholders’ equity is adjusted in
the amount of the fair value of the shares sold. The disposal of
121,000 treasury shares in 2006 led to a year-on-year increase
of 4 million euros in stockholders’ equity.
9.3. Legal risks
9.3.1. Intellectual property risk (patents)
As far as possible and when necessary, Valeo's industrial expertise
and innovations generated by the Group's research are covered
by patents designed to protect intellectual property. Valeo files a
large number of patents in its field, which constitute an effective
weapon in the fight against counterfeiting.
The Group also holds patent licenses from third parties within the
scope of its day-to-day activities.
9.3.2. Product and service liability
Valeo is exposed to warranty or liability claims by customers
with respect to the products and services it sells. Valeo may also
be exposed to liability claims for damage caused by defective
products or services sold by the Group. To protect itself from this
risk, Valeo has taken out an insurance policy to cover the financial
impact of these claims. However, it is uncertain whether this
insurance policy would be adequate to cover the full financial
impact of such claims.
9.4. Other risks
9.4.1. Counterpart risk
In the context of financial markets transactions entered into for
the purposes of risk management and treasury management,
the Group is exposed to counterpart risk. Limits have been
set by counterpart, taking account of the ratings of the
counterparts with ratings agencies. This also has the effect of
avoiding excessive concentration of market transactions with
a limited number of banks.
9.4.2. Liquidity risk
The Group targets maximization of its operating cash flows in
order to be in a position to finance both the investments required
for its development and growth and the dividend paid to its
stockholders. In addition, the strategy followed aims to ensure
that the Group has the cash resources necessary to honor its
commitments and meet investment needs. Thus, in 2005 the
Group issued 600 million euros worth of Euro Medium Term Notes
maturing in 2013. It also took out two syndicated loans for a total
of 225 million euros maturing in 2012. Valeo also has several
confirmed bank credit lines available for an average period of
three years in a total amount of 1.3 billion euros. None of these
2006 Reference document - VALEO 43
MAnAgEMEnt REPORt 2Information likely to be impacted by a public tender offer
credit lines were used at December 31, 2006. The Group also
has a short-term commercial paper financing program capped
at 1.2 billion euros.
At December 31, 2006, the debt/equity ratio was well within
the limits stipulated by the covenants. Non-compliance with this
ratio causes the credit lines to be suspended and leads to early
reimbursement of prior drawdowns.
The Euro Medium Term Notes include an option granted to the
bondholders who can request early redemption of their bonds in
the case of a change in control of Valeo leading to a downgrade
in the bond’s rating to below investment grade.
9.4.3. Credit risk
Valeo is exposed to credit risk, particularly to risk of default by its
automotive customers.
Valeo works with all automakers in the sector. At
December 31, 2006, 20% of the Group’s accounts and notes
receivable correspond to one of Valeo’s four largest customers.
Approximately 7% of this line relate to the two largest American
automakers, Ford and General Motors. The downturn in the
automobile sector business environment in recent years has led
the Group to strengthen control of customer risks and settlement
periods which may, on a case-by-case basis, be subject to bilateral
negotiations with customers. The average settlement period at
December 31, 2006 is 69 days.
Valeo also generates 7% of its net sales in the aftermarket. The
Group’s large, dispersed customer base in this market is constantly
monitored and the risk of default is covered by a credit insurance
policy. These customers represent slightly more than 7% of Group
accounts and notes receivable at December 31, 2006.
10. Information likely to be impacted by a public tender offer
10.1 Direct or indirect shareholdings in the Company, brought to the Company’s attention (articles L. 233-7 and 233-12 of the French Commercial Code)
As far as the Company is aware, the following shareholders held more than 2% of the Company’s capital or voting rights at
February 12, 2007:
Shareholders % ownership % voting right
Caisse des Dépôts 6.5% 9.0%
the Boston Company Asset Management LLC 5.4% 5.3%
Brandes Investment Partners (USA) 5.3% 5.2%
Pardus European Special Opportunities Master Fund LP 5.2% 5.1%
Franklin Resources Inc, (USA) 4.8% 4.7%
tocqueville Finance S.A. 2.8% 2.8%
Wyser Pratte Management Company, Inc. 2.4% 2.3%
M&g Investment Management Ltd 2.2% 2.2%
2006 Reference document - VALEO44
MAnAgEMEnt REPORt2 Outlook
10.2 Agreements entered into by the Company that would change or terminate if there were a change in control of the Company, with the exception of those agreements whose disclosure would seriously harm its interests (except in the event of a legal obligation to disclose)
As specified in section 9.4.2 above, the 2013 Euro Medium Term
Notes program for an amount of 600 million euros includes
an option granted to the bondholders who can request early
redemption of their bonds in the case of a change in control
of Valeo leading to a downgrade in the bond’s rating to below
investment grade.
Some of Valeo’s customers have a clause in their general
purchasing conditions allowing them to terminate the contract
with Valeo in the event of a change in control.
10.3 Agreements providing for indemnities payable to employees or members of the Board of Directors if they resign or are dismissed without real or serious cause or if their employment contract is terminated as a result of a public tender offer
As specified in section 8.1 above, Thierry Morin, Chairman of the
Board of Directors, is entitled to termination benefits set at three
times his most recent annual salary (excluding bonuses) if he
should leave the Company following a decision of the Board of
Directors or of his own volition in the event of a difference of
opinion concerning the strategy pursued by the Board further to
a public tender offer. These benefits are not payable in the event
of gross misconduct in the performance of his duties.
11. Claims and litigation
Known claims and litigation involving Valeo or its subsidiaries were reviewed as of December 31, 2006 and all necessary provisions made
to cover the estimated contingencies and potential losses.
12. Outlook
Automotive production in the Group's key markets is not
expected to stabilize before the second half of 2007. Against this
background, and assuming stable raw materials prices, Valeo is
aiming to improve operating profitability on the back of increased
efforts in terms of competitiveness.
2006 Reference document - VALEO 45
MAnAgEMEnt REPORt 2Environmental Indicators
13. Subsequent events
On December 4, 2006, the Group signed a memorandum of
understanding with Ford regarding the acquisition of the Sheldon
Road site (Plymouth, Michigan) specialized in the production of
climate control systems. This acquisition is contingent on the
signature of a new competitive agreement with the UAW (United
Auto Workers) union.
To the best of Valeo's knowledge, no other event has occurred
since December 31, 2006 that is likely to have a material impact
on the business, financial position, results or assets and liabilities
of the Group.
14. Parent company financial statements
Following the creation of subsidiaries for industrial activities in
2002, Valeo SA is now the Group's holding and cash management
company.
Valeo’s net financial income for the year amounted to 47 million
euros compared with 66 million euros in 2005. This decrease is
mainly due to a 203 million euro increase in write-downs of equity
investments, partially offset by a 159 million euro increase in
dividends and a 25 million euro rise in other financial income.
Net exceptional loss stood at 3 million euros in 2006, compared
with net exceptional income of 1 million in 2005.
Corporate income tax yielded a tax credit of 35 million euros
compared with a tax credit of 28 million euros in 2005.
Valeo's net income amounted to 74 million euros, compared to
88 million euros in 2005.
Valeo’s stockholders’ equity stood at 3,232 million euros at
December 31, 2006 compared with 3,240 million euros a year
earlier. This change mainly reflects net income for the year less
dividends.
15. Environmental Indicators
1. Introduction
This section provides an analysis of Valeo’s undertakings and
performance in terms of protecting the environment and
natural resources – two issues that underpin the very concept of
sustainable development.
In 2003, the Valeo Group joined the UN Global Compact – a set
of principles based on the Rio Declaration on Environment and
Development under which companies undertake to:
support a precautionary approach to environmental
challenges;
•
undertake initiatives to promote greater environmental
responsibility; and
encourage the development and diffusion of environmentally
friendly technologies.
For Valeo, this means:
designing and creating innovative products enabling it to reduce
the environmental impact of vehicles throughout their entire
life cycle and improve passenger safety;
preserving the environment during production at Group sites.
•
•
•
•
2006 Reference document - VALEO46
MAnAgEMEnt REPORt2 Environmental Indicators
Valeo’s sustainable development commitments are formally
documented in the Group's Environment Charter and form the
basis of numerous procedures in its Risk Management Manual.
These procedures apply equally to all Group sites irrespective of
local particularities and reflect the strategic approach adopted by
Valeo for over 15 years. This approach is rooted in a constant quest
to enhance the Group’s processes, backed by regular assessments
carried out by external consultants to track performance.
2. Environmental indicators
2.1. Presentation
In the majority of cases, indicators are expressed in terms of
both quantity of products consumed or emitted per million euros
and total quantity. Quantity per million euros is calculated by
dividing the total quantity by the total sales from the sites that
responded.
Comparative data have been provided for 2004 and 2005.
The extent to which the indicators are representative is expressed
by dividing the sales from each site that responded by the total
sales figure of all the sites included in the report.
In 2006, the Group decided to report environmental indicators on
a quarterly basis rather than annually as was previously the case,
in order to use them as a tool for managing the environmental
performance of the Group’s sites. Given the adaptation period
required for this quarterly reporting system, certain responses
were imprecise. In order to maintain a high level of reliability
of published data, these responses have not been taken into
account. Representativeness for 2006 is therefore sometimes
slightly below that for 2005.
As in previous years, all responses from sites were validated by an
external body in order to ensure quality and representativeness.
2.2. Scope
The environmental data published in this report concern all Valeo
production and distribution sites worldwide, except for the Group's
minority interests.
A total of 138 sites are included in the scope of environmental
indicators for 2006, including 12 “advanced supplier sites”, eight
Valeo Service sites and two storage sites, it being specified that:
the advanced supplier sites are manufacturing sites located at
an automaker;
sites dedicated exclusively to research and development, or to
office work, as well as sites that were acquired, sold or closed
during the year have not been included;
companies that are 50% controlled by Valeo are taken into
account at a rate of 50%. Companies over which Valeo exercises
more than 50% control are included on a 100% basis.
Valeo Engine Management Systems was included within the
scope of environmental indicators in 2006.
•
•
•
Valeo Motors and Actuators, which was sold to NIDEC at the end
of December 2006, was also included in the 2006 scope, with
the exception of recycled plastic and research and development
expenditure, for which data could not be obtained.
The scope of environmental indicators concerns all sites. A
reconciliation is carried out between the financial data reported
by the Group (sales, research and development expenditure, etc.)
and those reported by the individual sites.
This report was produced in compliance with the recommendations
of the Global Reporting Initiative (GRI).
ReseaRch and development (R&d) expendituRe
R&D expenditure in milllions of euros
200620052004
585646 661
2.3. Internal environmental management organization
The Risk, Insurance and Environment Department works hand-in-
hand with all Group departments, and is assisted by coordinators
assigned within each Product Family. These coordinators provide
technical support to Health, Safety, Security and Environment
(HSSE) managers at each site and report their findings to the
Risk Management Committee, which is the central oversight body
of the Risk, Insurance and Environment Department.
The HSSE managers provide expert advice to each site manager.
They are responsible for ensuring that procedures are correctly
applied, and perform internal audits to verify compliance with
both applicable regulations and Valeo’s standards.
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MAnAgEMEnt REPORt 2Environmental Indicators
2.4. Compliance of operations with applicable regulations and group standards
Valeo's risk management policy is set out in the Group’s Risk
Management Manual as well as in application guidelines
intended for each Group site. The related procedures are focused
on ensuring that operations comply with Group standards and
the regulations in force in each country. A major feature of this
policy is the Valeo audit program, introduced in 1991. This entails
regular audits carried out every one to three years by external
independent consultants, at the request of the Risk, Insurance and
Environment Department, in order to ensure that the Group's risk
management policy has been correctly applied. The audits help to
track progress at the sites and provide Group Management with
a good overview of risks.
During each audit, the sites' level of performance and progress is
appraised in relation to:
the environment;
occupational health and safety;
•
•
safety of buildings and equipment;
security of equipment and data.
Action plans are subsequently established by the sites, based on
observations resulting from the audit and prioritization of risks. A
status report on the action plans is provided every six months to
the Risk, Insurance and Environment Department.
exteRnal audits
42 42
115
5159 58
116
71
46 46
110
42
SecuritySafety of equipment
Occupational healthand safety
Environment
200620052004
•
•
3. Committing to the ongoing improvement of environmental performance and occupational health and safety through an internationally-recognized certification process.
To demonstrate of its focus on continually reducing its
environmental impact and improving the health and safety of its
employees, the Valeo Group has committed to two certification
processes: ISO 14001 for environmental management and
OHSAS 18001 for occupational health and safety.
The ISO 14001 certification process began in 1998, and by
December 31, 2006 substantially all the Group’s sites had been
certified. The recently opened sites at Mioveni in Romania and
Kosice in Slovakia were among those that obtained certification
in 2006.
The Group started to roll out its OHSAS 18001 certification
process in 2005 and obtaining this certification was one of its
key projects in 2006. By the end of the year, 72 sites had passed
the certification audit.
Implementing these management systems has enabled the
Group to improve its environmental performance and occupational
health and safety level, thus limiting any adverse impact of its
operations.
An integral component of the overall management system is
employee training, which Valeo provides on an ongoing basis
and which helps to change attitudes not only in the workplace
but also within daily life in general.
The Group uses its intranet site to make the relevant tools available.
For the roll-out of OHSAS 18001, for example, the Group provided
each site with a self-analysis and tracking tool. A regulatory
monitoring tool was also made available to the French sites.
The Group’s main objectives for 2007 are to:
obtain ISO 14001 certification at all of its sites;
extend the OHSAS 18001 certification process to all sites;
set up a risk management self-assessment tool for the sites;
consolidate efforts to reduce risks within the Group;
seek new opportunities to reduce the environmental impact
of its operations through targeted studies on key issues such
as transport-related CO2 emissions.
•
•
•
•
•
2006 Reference document - VALEO48
MAnAgEMEnt REPORt2 Environmental Indicators
numbeR of iso 14001 and ohsas 18001
ceRtified sites
210
27
48
67
85
2
102
6
117
15
127
72
OSHAS 18001ISO 14001
200620052004200320022001200019991998
total numbeR of houRs of enviRonmental
tRaining
200620052004
38 97936 938 37 386
4. Optimizing water and energy use
For several years the Group has made significant efforts to preserve
water resources, notably by ceasing to use open-loop cooling
systems. The measures implemented led to a 45% decrease in
the Group’s water consumption in proportion to sales between
2001 and 2005. Consumption stabilized in 2006, with the Group
using approximately 250 liters of water per day per employee.
By way of comparison, the average consumption of a four-person
family in Europe is 440 liters per day (source: Veolia Eau).
Valeo plays an active role in cutting vehicle energy consumption
through the design of its products, mainly by decreasing the
weight of components but also by developing specific products
enabling energy consumption to be reduced (see section on these
areas in this document).
Group energy consumption at site level has been stable for
several years, amounting to approximately 30,000 KWh per year
per employee compared with 40,000 KWh consumed by a four-
person family occupying a 120 sq.m. house in Europe (source:
Greenpeace).
The Valeo Factory Design Guide, which defines the Group’s site-
construction principles, includes a generic plant concept with
a section on energy optimization. The thermal aspects of the
building, ventilation, lighting and energy integration of procedures
and utilities are now addressed at design stage to ensure that
operating energy output is properly controlled. In China, for
example, redesigning a plant’s heating and ventilation system
should result in energy savings of around 40%.
Several plants were audited in 2006 with a view to identifying
means of improving energy consumption. Heat recuperation
systems have already been integrated into certain manufacturing
equipment such as VOC combustion systems. A pilot project is in
progress within the Valeo Engine Cooling Product Family aimed at
developing a generic methodology for all of the Group’s plants.
The Group is also continuing to promote the use of thermal
energy sources such as natural gas, which have a relatively low
environmental impact.
WateR consumption
Total volume of water consumed/sales (m3/millions of euros)
Total volume of water consumed (m3 thousands)
Representativeness: 2004: 98.0% 2005: 99.7% 2006: 96.9%
200620052004
514
5 032
303
3 262
341
3 463
Figures for 2004 and 2005 have been rectified on the above graph
following the discovery of a reporting error by a site.
eneRgy consumption
Total energy consumption/sales (MWh/millions of euros)
Total energy consumption (GWh)
Representativeness: 2004: 97.1% 2005: 98.7% 2006: 96.2%
200620052004
179
1 739
171
1 814
185
1 868
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MAnAgEMEnt REPORt 2Environmental Indicators
bReakdoWn of eneRgy consumption
OtherFuel oilGasElectricity
200620052004
58% 63% 64%
33% 34% 34%
6% 2% 2%3% 1%
5. Reducing consumption of non-renewable raw materials
One of the Group’s objectives is to preserve raw materials and
diminish waste production. This applies to products and product
design processes alike.
For example, the Valeo Electronics & Connective Systems Product
Family has significantly reduced the number of electric wires
required to make the full set of a vehicle's components work. At
the same time, through its starter and alternator remanufacturing
activity Valeo Electrical Systems provides the aftermarket with
over one million parts each year, thus doubling the lifespan of
these products.
Packaging materials also use up raw materials and generate
waste. With this in mind, for the past several years the Group
has progressively implemented measures to replace single-use
packaging by multi-use packaging. One of the first steps was to use
specific packing boxes, usually made from plastic, for transporting
products between Group sites, customers and suppliers.
The Group’s current priority is to use recyclable plastic.
In 2006, a survey was carried out at all Group sites on the quality
of packaging materials purchased. Responses to this survey
showed that:
one third of all materials purchased are used several times;
most sites only use recycled plastic boxes. Only a few sites still
use mainly PVC boxes;
over half of all Valeo’s sites have made requests to their
suppliers regarding the volume and/or nature of packaging
used.
The Group’s consumption of packaging materials decreased
slightly between 2005 and 2006, and certain sites carried out
specific studies in this area. The Pedreira site in Brazil, for example,
put in place an action plan in conjunction with its customers
and suppliers that enabled it to reduce its packaging materials
purchases by 45% in 2006.
•
•
•
In 2007, pilot sites will be selected in each Product Family in order
to conduct studies in this domain with the aim of drawing up
action plans that could subsequently be deployed Group-wide.
use of Recycled plastic
(in tonnes)
6 219
5 198
6 150
200620052004
use of packaging mateRials
Total packaging materials used/sales (tonnes/millions of euros)
Total packaging materials used (tonnes)
Representativeness: 2004: 80.1% 2005: 92.5% 2006: 90.4%
200620052004
5 503
48 606
6 741
67 239
6 669
63 248
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MAnAgEMEnt REPORt2 Environmental Indicators
bReakdoWn of packaging mateRials used
OtherWoodCardboardPlastics
200620052004
8%17% 10%
48%
53%57%
44%29%
1%
32%
1%
6. Reducing the consumption of hazardous products
The main raw materials used by the Group in the manufacture
of its products are metals (ferrous metals, steel and aluminum in
particular) and plastics.
Continuously reduced quantities of halogenated solvents, including
trichloroethylene, and heavy metals (mainly lead) are used in
manufacturing processes.
Between 2001 and 2006 product substitution efforts enabled the
Group to reduce heavy metal use by over 90% and chlorinated
solvent use by 70% in proportion to sales.
In the interests of improving reporting on carcinogenic, mutagenic
and reprotoxic (CMR) substances, and as the classification of such
substances can vary from country to country, Valeo decided in
2006 that substances classified as CMR in Europe should be
recorded as such in every country. This resulted in a slight increase
in the quantity of CMR substances recorded for 2006 compared
with 2005.
use of chloRinated solvents
Use of chlorinated solvents/sales (kg/millions of euros)
Use of chlorinated solvents (tonnes)
Representativeness: 2004: 95.8% 2005: 99.3% 2006: 98.2%
200620052004
153
1 469
109
1 171
107
1 096
use of heavy metals
Use of heavy metals/sales (kg/millions of euros)
Use of heavy metals (tonnes)
Representativeness: 2004: 97.2% 2005: 99.6% 2006: 97.5%
200620052004
28
274
28 29
294296
use of caRcinogenic, mutagenic and RepRotoxic
(cmR) substances
Use of CMR substances/sales (kg/millions of euros)
Use of CMR substances (tonnes)
Representativeness: 2004: 94.9% 2005: 98.8% 2006: 98.2%
200620052004
107
1 062
98 111
1 1381 049
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7. Reducing emissions of hazardous substances
To preserve the natural surroundings close to its sites, the Group
is firmly committed to reducing the emission of hazardous
substances into the air and water.
Between 2001 and 2006 the volume of industrial effluents
handled on site and discharged into the natural environment
decreased by 70% in proportion to sales. Reducing the use of
hazardous substances and enhancing processes has enabled
a significant number of sites to improve the quality of their
emissions, which can then be processed by the local waste
water treatment infrastructure. For example, the quantity of heavy
metals in industrial effluent has decreased by 90% over the last
six years in proportion to sales.
Equally encouraging results have been achieved as regards air
emissions.
The following decreases (as a percentage of sales) have been
achieved:
almost 50% for Volatile Organic Compounds (VOCs) between
2001 and 2006;
65% for Trichloroethylene (TCE) between 2003 and 2006;
and
80% for lead between 2003 and 2006.
Valeo’s day-to-day manufacturing processes do not have an impact
in terms of ground pollution, mainly because any processes that
could potentially damage the ground are carried out on waterproof
coverings.
volume of industRial effluent
Volume of industrial effluent emissions/sales (m³/millions of euros)
Volume of industrial effluent emissions* (m³ thousands)
Representativeness: 2004: 98.8% 2005: 99.4% 2006: 94.1%
200620052004
102
1 009
65
695
76
748
•
•
•
heavy metal content in effluent
Heavy metal content in effluent/sales (kg/millions of euros)
Heavy metal content in effluent (kg)
Representativeness: 2004: 98.8% 2005: 99.3% 2006: 93.9%
200620052004
0,04
365
0,02
208
0,03
278
voc atmospheRic emissions
VOC atmospheric emissions/sales (kg/millions of euros)
VOC atmospheric emissions (tonnes)
Representativeness: 2004: 86.9% 2005: 97.6% 2006: 92.6%
200620052004
143
1 242
162
1 708
153
1 489
tce atmospheRic emissions
TCE atmospheric emissions/sales (kg/millions of euros)
TCE atmospheric emissions (tonnes)
Representativeness: 2004: 96.5% 2005: 99% 2006: 96.6%
200620052004
54
536
44
465
32
327
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lead atmospheRic emissions
Lead atmospheric emissions/sales (g/millions of euros)
Lead atmospheric emissions (kg)
Representativeness: 2004: 90.8% 2005: 99.0% 2006: 96.6%
200620052004
13
130
7
72
5
52
8. Reducing waste production
The Group’s main waste products, in descending order of volume,
are metal, wood and plastics. Almost all metal waste (98%) is sold
for recycling. 75% of wood is recycled and the remainder is used
for heating. Two-thirds of plastics are sold for recycling.
The Group’s waste production has been stable over the past few
years, fluctuating between 12 and 14 tonnes per million euros
of sales since 2001.
Waste pRoduced
Total quantity of waste produced/sales (tonnes/millions of euros)
Total quantity of waste produced (tonnes)
Representativeness: 2004: 98.5% 2005: 99.9% 2006: 97.4%
200620052004
13
123 216
12
132 725
14
138 772
type of Waste
Non-hazardous wasteHazardous waste
200620052004
17%
83%
17%
83%
17%
83%
Waste Re-use Rate
200620052004
Representativeness: 2004: 95.4% 2005: 99.4% 2006: 96.8%
59% 71% 72%
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9. Combating climate change
Carbon dioxide (C02) is currently considered to be one of the main
contributors to the greenhouse gas effect that causes climate
change. It is the main greenhouse gas generated by the Valeo
Group, and is principally produced by the combustion of fossil fuel
and the Group’s means of transport.
Valeo has developed technologies that aim to significantly reduce
the energy consumption of vehicles and, consequently, their C02
emissions.
In 2001 the Group took steps to quantify emissions caused by the
combustion of fossil fuels. C02 emissions were calculated based
on energy consumption using the emission coefficients of the
Intergovernmental Panel on Climate Change.
The quantity of C02 emitted by the Group per million euros of
sales decreased by 25% between 2001 and 2006, but remained
stable over the last three years at approximately 12 tonnes per
million euros.
Some facts and figures:
the Group emits two tonnes of C02 per employee per year, which
is equivalent to that generated in one year by a French car driver
(source: French Environment and Energy Management Agency
- ADEME - and the French Institute for the Environment - Ifen);
•
annually, the entire Valeo Group emits the equivalent of less
than 5% of the C02 emissions allocation of a French thermal
power station.
These results confirm that the Valeo Group’s contribution to the
greenhouse effect is only minor. To date, none of the Group’s
sites have been implicated by regulations concerning quotas of
greenhouse gas emissions. Nevertheless, Valeo wishes to move
forward in this domain and has scheduled to undertake a review
in 2007 of its CO2 transport-related emissions.
co2 atmospheRic emissions
Greenhouse gas emissions/sales (tonnes equiv C02/millions of euros)
Greenhouse gas emissions (tonnes equiv C02)
Representativeness: 2004: 94.7% 2005: 100% 2006: 96.9%
200620052004
12
112 195
11
121 157
12
123 971
•
10. Reducing pollution
Minimizing all forms of pollution is another of the Group's ongoing
objectives. This concerns both the performance of products
developed by the Group and the processes implemented to create
such products.
The Group has developed a starter-alternator that allows an engine
to be stopped and restarted instantly and silently, resulting in a
notable reduction in noise pollution in urban areas.
In accordance with the recommendations of the Valeo Factory
Design guide, the visual impact of sites is taken into account at the
time of their construction, and a large section of each site is given
over to green spaces. The architectural design of a Valeo site is a
far cry from most people’s image of a manufacturing plant, with
particular priority being given to transparent surfaces.
Valeo’s activities are not especially noisy and sites are generally
located quite far from residential areas.
Odor pollution can be particularly unpleasant for local residents and
is usually caused by the emission of Volatile Organic Compounds.
Procedures have been put in place to reduce the use and emission
of such compounds at source, including the replacement of
solvent-based paints by water-based paints and the elimination
of trichloroethylene in the manufacture of clutch facings.
The Valeo sites concerned are equipped with systems for
treating these compounds in order to keep odor pollution below
the perception threshold. Such systems include biofiltration,
absorption, condensation and incineration, with incineration being
the most frequently used.
A generic study is in progress to find ways to link up VOC
incineration equipment and energy recuperation systems.
In 2006, a complaint was lodged by a neighbor regarding odor
pollution at Valeo’s Daegu site, in Korea. Although the site was
equipped with a VOC treatment system, its emissions still posed
a problem. Following this complaint the Group employed an
external expert to analyze the situation on-site and draw up
an action plan. The first step was to establish a communication
process between the plaintiff and the site managers.
The Group is particularly vigilant not to damage the health of local
residents. In 2005 it compiled a Directive on legionella bacteria.
This Directive is based on French law, which is one of the strictest
in this domain, and is applicable at all Valeo sites worldwide.
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Under this Directive, the sites must:
where possible replace wet cooling towers by dry towers;
implement preventative treatment systems to avoid the
proliferation of legionella bacteria; and
carry out frequent controls to ensure the effectiveness of
treatments in place.
•
•
•
In 2006, Valeo’s head office, which is located in a particularly
sensitive urban environment, applied this Directive by replacing
the wet cooling towers for the building’s air conditioning system
with dry towers.
11. Managing the life cycle of a site
A site’s life cycle consists of finding a location, building the site,
operating the site and ultimately closing or selling it. Valeo has set
up particularly rigorous regulations with respect to these phases.
The sites are very often located near customer sites, in industrial
zones that already exist or are under construction, in order to
benefit from local infrastructure and qualified sub-contractors.
When choosing its locations, the Group systematically performs
audits to check (i) if there are any potential environmental
liabilities such as ground or ground water pollution, (ii) if
the surrounding area is hazardous or particularly sensitive
and (iii) if there is a risk of natural disasters such as floods or
earthquakes.
Sites are constructed or rehabilitated in accordance with the
generic plant concept developed by the Group in the Valeo
Factory Design manual.
Over and above the constraints and specifications set out
in this manual (architectural, environmental, organizational,
etc.), the key issue is the creation of a “project team”, which
from the outset includes specialists capable of addressing
certain concerns, particularly regarding the environment and
equipment safety. This project team is tasked with applying the
best possible sustainable development solutions at each stage
•
•
of a site’s life (construction, operation, extension, closure). For
example, the Group’s new plants in Poland (Chrzanow, Skawina
and Czechowice) as well as China (Nanjing and Wuhan) have
set up retention systems by using parking lots or unloading
docks to contain accidental spillages of products and fire
extinction water.
The operational phase of each site is governed by Group
Directives concerning employee health and safety, the
environment, equipment safety and general security. If ground
or groundwater pollution is suspected during this phase it is
investigated and an appropriate solution is put in place.
When a business is sold or terminated, Valeo systematically
performs an audit, usually along with an investigation of the
ground and subsurface water, to determine if any damage has
been caused during the operational phase. If any pollution
is discovered it is treated immediately. All the information
gathered during the audit and subsequent phases is disclosed in
all transparency to the buyer of the site and, where applicable,
to the Authorities. If a site is closed without there being an
immediate buyer, all the waste, raw materials, products and
equipment are removed and maintenance of the site is ensured
until a buyer is found.
•
•
12. Ensuring the safety of operations and equipment
There could be no sustainable development at Valeo if all sites were
not protected from natural disasters and technological risks.
The Group’s policy in this respect has always been to ensure the
highest possible levels of protection at its sites. For this reason:
most of Valeo’s sites are classified HPR (Highly Protected Risk)
and have an automatic sprinkler system to protect against
fire, as well as teams trained to deal with all kinds of risk
situations;
all sites located in seismic risk zones have been constructed
or renovated in compliance with the most recent seismic
regulations;
•
•
where possible, Valeo’s sites are located in areas not liable to
flooding or are equipped with means of protecting against
floods;
new Valeo sites are located far from sites posing potentially
significant risk (Seveso sites, etc.), which could have a domino
effect and endanger Valeo's sites;
the Risk Management Manual contains a specific Directive
dealing with the prevention of emergency situations as well
as situation-specific emergency plans. This Directive requires
each site to implement an emergency plan with a view to
preventing potential incidents. Valeo is currently working on a
•
•
•
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MAnAgEMEnt REPORt 2Social indicators
project to provide all Group sites in 2007 with a tool called Valeo
Emergency and Recovery Management (VERM) to help them
design and implement emergency and crisis management
plans as well as procedures for restarting equipment.
VERM will enable each emergency plan to share a common
structure and content, will encourage employee involvement,
and will ensure that the plans are rapidly implemented.
13. Financial data
2004 2005 2006
Scope
Value (In thousands
of euros)
number of fines and compensation awards 5 5 3
Representativeness as a % of sales 98% 100% 99%
Amount of fines and compensation 25 16 4
Representativeness as a % of sales 98% 100% 99%
Provisions and guarantees for environmental risks 7,580 8,054 3,091
Representativeness as a % of sales 92% 94% 99%
Costs incurred by corporate departments to prevent any adverse environmental impacts of the business 14,140 13,861 16,417
Representativeness as a % of sales 97% 99% 97%
Investments made (excluding pollution elimination costs) to prevent any adverse environmental impacts of the business 5,624 7,205 4,244
Representativeness as a % of sales 96% 98% 98%
Specific pollution elimination costs 869 1,467 1,240
Representativeness as a % of sales 96% 99% 97%
16. Social indicators
This social indicators report is based on the obligations and
recommendations set out in the French New Economic
Regulations Law (NRE) of May 15, 2001 and decree No. 2022-221
of February 20, 2002.
The Valeo Group has chosen to base its social indicators on data
from all of its companies worldwide. There are some exceptions
to this, which are listed on a case-by-case basis.
Valeo continued the step-by-step improvement of its indicators
system in 2006 in all 12 of its Product Families and holding
companies, representing a total of 129 production sites, 68 R&D
centers and nine distribution platforms in 27 countries.
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MAnAgEMEnt REPORt2 Social indicators
1. Employment
1.1. number of employees
1.1.1. Changes in number of employees over three years
2004 2005 2006 *
Engineers and managers 11,249 11,953 12,134
Administrative staff, technicians and supervisors 11,477 11,514 11,198
Operators 40,593 41,499 41,126
Registered headcount 63,319 64,966 64,458
Agency temporary staff 3,957 5,338 5,206
TOTAL hEAdCOunT 67,276 70,304 69,663
including:
Permanent staff• 55,540 58,976 59,969
temporary staff• 11,736 11,329 9,695
* Excluding VMA (with the exception of its Chinese division).
At December 31, 2006, the Group employed 69,663 people
worldwide, down 0.9% on 2005 but up 3.4% on 2004. This
reduction is attributable to the sale of the Valeo Motors and
Actuators Product Family on December 27, 2006.
Overall temporary staffing levels (fixed-term contracts and agency
temporary personnel) decreased by a further 14% on the back
of the Group's efforts to increase job security. In 2006, temporary
staff represented 14% of the Group's total employees, compared
with 16% in 2005 and 17% in 2004.
The percentage of engineers and managers edged up once again
in 2006, to 18.8% of headcount versus 18.4% in 2005 and 17.8%
in 2004.
1.1.2. Internationalization of Group headcount
The Group's global expansion has given rise to an increasingly
international staff. 73% of employees currently work in countries
other than France, compared with 47.8% in 1995.
total headcount excl. fRance
1995 2000 2005 2006*
14,125 50,002 50,273 50,867
* Excluding VMA (with the exception of its Chinese division).
Western Europe
Eastern Europe Africa
north America
South America Asia
total headcount at December 31, 2006* 31,368 10,209 9,699 7,181 3,550 7,656
45.0 % 14.7 % 13.9 % 10.3 % 5.1 % 11.0 %
* Excluding VMA (with the exception of its Chinese division).
In line with changes in the world’s automotive markets, the Group has reduced the proportion of its staff based in Western Europe and the
United States (from 58.7% in 2005 to 55.3% in 2006) and increased the weighting of other regions in its total headcount (from 41.3%
in 2005 to 44.7% in 2006).
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MAnAgEMEnt REPORt 2Social indicators
1.1.3. Generational turnaround
peRmanent WoRkfoRce by age bRacket*
1,08
61,
791
4,78
0
531
2,73
5
5,35
04,
078
13,4
06
14,6
252,
395
2,85
3
2,78
97,
632
151
67110
79
** I&C: Ingineers & Managers*** ATAM: Technicians, Supervisors & Administative Staff
ATAM***I&C**
>60 years50/59 years40/49 years30/39 years20/29 years<20 years
Operators
* Excluding VMA with the exception of its Chinese division.
At December 31, 2006, the Group's permanent workforce broke
down as follows:
31.8% under 30;
35.4% between 30 and 39;
20.4% between 40 and 39;
12.4% over 50.
The high number of new staff recruited each year generates
significant generational turnaround.
•
•
•
•
1.2. Recruitment
Apart from certain highly localized difficulties concerning positions
requiring advanced specialization or specific language skills,
thanks to its corporate image and experience, the Group did not
encounter any particular problems in relation to recruitment during
the year.
1.2.1. Permanent contracts
numbeR of neW hiRes on peRmanent contRacts
2004 2005 2006 *
Engineers and managers 1,475 1,772 1,890
technicians, supervisors and administrative staff 844 757 849
Operators 3,306 4,029 5,581
TOTAL 5,625 6,558 8,320
* Including VMA hires.
In 2006, Valeo stepped up its efforts to reduce the use of temporary
contracts, thus increasing the number of new hires on permanent
contracts by 27% across all socio-professional categories.
Engineers and managers accounted for 23% of these new hires
(27% in 2004 and 26% in 2003). Although this percentage is lower
than previous years, in volume terms new hires in this category
are still increasing. The lower proportion of new hires of engineers
and managers reflects the considerably increased weighting of
production operators in the total number of recruitments, up from
59% in 2004 to 61% in 2005 and 67% in 2006.
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bReakdoWn of neW hiRes on peRmanent contRacts by geogRaphical aRea*
Western Europe
Eastern Europe Africa
north America
South America Asia
Permanent contracts 2006* 1,394 2,059 481 2,624 771 991
16.8% 24.7% 5.8% 31.5% 9.3% 11.9%
* Including VMA.
The Group focused its recruitment efforts during the year on Eastern Europe and North America.
1.2.2. Fixed-term contracts
numbeR of neW hiRes fixed-teRm contRacts
2004 2005 2006*
Engineers and managers 241 258 239
technicians, supervisors and administrative staff 273 380 239
Operators 7,924 7,655 6,876
TOTAL 8,438 8,293 7,354
* Including VMA.
7,354 fixed-term contracts were signed during the year, down 11.3% on 2005 and 12.8% on 2004.
Employees on fixed-term contracts occupied 4,489 posts at December 31, 2006, compared with 5,991 in 2005 and 7,779 in 2004.
bReakdoWn of neW hiRes on fixed-teRm contRacts by geogRaphical aRea
Western EuropeEastern Europe Africa
north America
South America Asia
Fixed-term contracts 2006* 2,984 1,112 2,320 581 0 357
40.6% 15.1% 31.5% 7.9% 0.0% 4.9%
* Including VMA.
1.3. Departures
2004 2005 2006*
Contract terminations 3,454 3,143 3,153
of which redundancies 1,661 993 1,017
Early retirement 367 462 162
Retirement 606 420 640
* Including VMA.
Valeo terminated 3,153 contracts in 2006, representing 5.3% of
the permanent workforce (5.3% in 2005 and 6.2% in 2004).
As in 2005, redundancies accounted for less than one third of total
contract terminations in 2006, compared with one-half in 2004.
Early retirement and retirement represented the equivalent of 1.3%
of the permanent headcount (1.5% in 2005 and 1.8% in 2004).
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MAnAgEMEnt REPORt 2Social indicators
bReakdoWn of 2006 depaRtuRes by geogRaphic aRea
Western Europe
Eastern Europe Africa
north America
South America Asia
Redundancies 473 62 39 425 0 18
46.5% 6.1% 3.8% 41.8% 0.0% 1.8%
Dismissals 265 237 317 800 491 26
12.4% 11.1% 14.8% 37.5% 23.0% 1.2%
Resignations 851 871 1,196 1,341 141 323
18.0% 18.4% 25.3% 28.4% 3.0% 6.8%
Early retirement 144 0 0 1 0 17
89.2% 0.0% 0.0% 0.6% 0.0% 10.2%
Retirement 312 17 2 258 4 47
48.8% 2.7% 0.3% 40.3% 0.6% 7.3%
* Including VMA
Information on rightsizing and employment protection
plans, transfer, rehiring and assistance measures
Valeo is firmly committed to a forward-looking employment
and skills management policy. During restructuring operations
the Group regularly consults with employee representatives and
explores all possible avenues to finding alternative employment for
staff, including internal transfers, outplacements, initiatives aimed
at finding buyers for divested operations and reindustrialization of
employment catchment areas.
Rightsizing programs launched in 2006 involved six of the Group’s
13 Product Families (10 in 2005), and a total of 727 employees
(1,640 in 2005). The six Product Families concerned were: Valeo
Climate Control, Valeo Engine Cooling, Valeo Compressors, Valeo
Lighting Systems, Valeo Wiper Systems, and Valeo Electronics &
Connective Systems.
In respect of programs completed in 2006, 173 out of a total
of 175 employees found new employment, a rate of 98.9%
(compared with 79.1% in 2005). Internal transfers accounted
for 56.1 points of this figure and outplacements for 5.8 points.
Early retirement and retirement made up another 3.5 points,
resignations accounted for 8.1 points, and alternative transfer
solutions represented 26.6 points. In addition, during the year
the Czechowice site in Poland, which was part of the Valeo
Electronics & Connective Systems Product Family, was able to
transfer its entire activity along with all 225 of its employee posts
to Valeo Electrical Systems – also in Czechowice – without having
to implement a redundancy plan.
2. Organization of the working week
2.1. Working hours/days
Full-time employees
The work of employees within the Group's 129 production sites, 68
R&D centers and nine distribution platforms is based on statutory
working time, which varies between 35 and 48 hours per week
depending on the country in question.
The most widespread statutory working time is 40 hours per
week.
In France, the agreement on the reduction in working time, signed with trade unions on April 20, 2000, sets the applicable working time
as follows:
Engineers and managers 215 days per year
technicians, supervisors and administrative staff 35 hrs
Employees without paid overtime hours 37.5 hrs
Operators 35 hrs
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Part-time employees
As part-time work is defined as any work schedule lower than the standard working hours of a particular entity, the average working time for
part-time employees varies between 10 and 38 hours per week, depending on the country and socio-professional category concerned.
2.2. Shift patterns
employee bReakdoWn by shift patteRns in %
2004 2005 2006*
Day workers 41% 45% 43%
two 8-hour shifts 32% 27% 30%
three 8-hour shifts 21 21% 20%
night workers 5% 5% 5%
Weekend workers 1% 2% 2%
* Excluding VMA (with the exception of its Chinese division).
Most production employees work two or three shifts or nights in order to optimize plant utilization. In 2006, the number of shift workers
increased by 2%.
2.3. Overtime
In 2006, 6,554,338 hours of overtime were paid (as compared with 7,248,369 in 2005 and 19,930,387 in 2004). 81% of this was paid to
production employees (79% in 2005, 74% in 2004).
2.4. Part-time work
In 2006, 1,241 of the Group's employees worked part-time,
representing 1.9% of the permanent workforce, in line with the
2005 figure and down from 2.5% in 2004.
Women accounted for 75.2% of the Group’s part-time workers.
Part-time numbers break down as follows: engineers and
managers: 6.1%; technicians, supervisors and administrative staff:
16.9%; and operators: 77%.
In certain countries the percentage of part-time employees was
much higher than the Group average. This was particularly the
case in Germany (12.1%), Belgium (9.1%), Spain (5%), Italy
(2.5%) and France (2.1%).
2.5. Absenteeism
Absenteeism, expressed as the number of hours absent over
the possible number of working hours, fell once again in 2006
coming in at 2.7%, down 0.1 percentage point on 2005 and
0.2 percentage point on 2004. Absenteeism recorded during the
year was due to sickness (74.8%), work-related accidents (3.9%),
strikes (3.3%), unauthorized absences (5.2%), suspensions
(0.8%), authorized absences such as unpaid leave (7.6%) and
other reasons (4.3%).
The sustained reductions in absenteeism rates from 2.9% in
2004 and 3.4% in 2003 were achieved thanks to action plans
implemented across the Group.
The absenteeism rates recorded in 2006 varied from 0.3% in Japan
to 4.9% in the Czech Republic, with France coming halfway in the
ranking with a rate of 2.7%.
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3. Equality between men and women in the workplace
bReakdoWn of Women by socio-pRofessional categoRy
2004 2005 2006*
Engineers and managers 16.0% 17.1% 17.1%
technicians, supervisors and administrative staff 26.9% 28.3% 26.5%
Operators 45.6% 44.4% 46.0%
* Excluding VMA (with the exception of its Chinese division).
peRcentage of Women hiRed undeR peRmanent contRacts oveR thRee yeaRs
Engineers and managersTechnicians, supervisors and administrative staff Operators Total
Women % Women % Women % Women %
2004 286 19.4% 209 24.8% 1,209 36.6% 1,703 30.3%
2005 369 20.8% 157 20.7% 1,470 36.5% 1,996 30.4%
2006* 414 21.9% 184 21.7% 2,268 40.6% 2,866 34.4%
* Including VMA.
3.2. Diversity
The Valeo Group has sites in 27 countries and is thus highly
diversified.
In 2006 the Group's workforce was comprised of employees of
91 nationalities.
The most prevalent nationalities in the Group are French, German,
Italian, Spanish and Chinese.
The countries with the most internationalized workforces are
France (59 nationalities), Germany (41 nationalities), the United
States (29 nationalities), Spain (20 nationalities) and Italy (20
nationalities).
The Group's most diversified Division is the Valeo Wiper Systems
Product Family in Germany, with 27 nationalities within a
workforce of 1,439 employees.
3.1. Male-female breakdown
Valeo places great importance on equality between men and
women in the workplace, in terms of career development, training
possibilities, salaries and rank within the company.
Valeo draws up a comparative, male-female status report for
the Group’s French companies every year. This report is used as
a basis for annual negotiations between labor and management
on targets for equality in the workplace and on the measures
required to achieve these targets.
The percentage of women employed by the Group is once again
on an upward trend, climbing to 37.2% in 2006 (36.9% in 2004
and 36.6% in 2005).
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4. Labor relations and collective bargaining agreements
Valeo has developed an active contractual policy in respect of
labor relations. In 2006, a total of 359 agreements were signed
in 21 countries, compared with 315 in 2005 and 232 in 2004, in
various areas and in accordance with the terms and conditions
stipulated under different national legislations.
Among these agreements, 128 (35.7%) related to working time,
108 (30.1%) to salaries, 21 (5.8%) to profit-sharing and incentive
schemes, and 30 (8.4%) to premiums or bonuses.
In certain countries such as France, Italy, Germany, Tunisia and
Japan, a large number of meetings took place with trade unions,
which led not only to formal and informal exchanges but also to
the signature of numerous agreements, including:
Western Europe
France: agreement on the length of terms of office held by
employee representatives, 2006 wage agreements, agreements
on forward-looking employment and skills management and
the organization of working time and leave, pre-election
agreements, method agreements, and labor law provisions
in company bylaws.
Italy: agreements on the organization of working time and
leave, performance bonuses and unemployment benefits.
Germany: agreements on personal safety equipment, corporate
diversity and social cohesion, and retirement.
Spain: wage agreements.
Eastern Europe
Czech Republic: collective bargaining agreements and wage
agreements.
•
•
•
•
•
Africa
Tunisia: agreements on the organization of working time and
leave, personal safety equipment, the classification of staff,
and wages.
Morocco: wage agreement.
north America
Mexico: wage agreements and agreements on the organization
of working time and leave.
South America
Brazil: wage agreements, collective bargaining agreements and
agreements on employee profit-sharing, incentive schemes
and time savings accounts (épargne-temps).
Argentina: wage agreements.
Asia
Japan: agreements on the payment of premiums and bonuses,
and on the organization of working time and leave.
Thailand: agreements on retirement age and welfare cover.
The European Works Committee includes representatives from
Germany, Belgium, Spain, France, Hungary, Italy, Poland, Portugal,
the Czech Republic, Slovakia and Sweden. The Committee met
six times in 2006.
The countries in which employees are fully or partially covered
by a collective bargaining agreement are France, Spain, Portugal,
Italy, Germany, Sweden, the Czech Republic, Slovakia, Hungary,
Romania, Tunisia, the United States, Mexico, Brazil, Argentina,
South Korea, Japan and India.
•
•
•
•
•
•
•
5. Health and safety in the workplace
The Group’s target in terms of health and safety is to intensify its
approach to work-related accident prevention and reach a "Zero
Accident" rate.
Health and safety at work is a clear priority for Valeo. Systematic
audits are performed by external consultants to assess and control
risks, and Valeo has implemented Group-wide standards.
In 2006, Valeo pushed ahead with its endeavors to optimize
health and safety in the workplace, drawing up a roadmap to
help the Group achieve world-class standards. As part of this
process, Valeo has set up a formal procedure for responding to
and analyzing accidents, and the related information system can
be used to share best practices and ensure their implementation
with a view to eradicating risk.
In addition to the systematic audits and indicators already in place
(frequency rate and gravity rate), Valeo has instigated a physical
indicator which is monitored on a monthly basis for each site.
This new indicator measures all workplace accidents, regardless
of whether or not they lead to absence, as well as incidents
involving a potential risk of personal injury. In 2006, there were
763 accidents leading to absence, compared with 693 in 2005.
The Group has, however, stopped keeping track of the number of
days without accidents.
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MAnAgEMEnt REPORt 2Social indicators
gRoup
2004 2005 2006
Frequency rate* 7.21 5.07 5.55
gravity rate** 0.16 0.16 0.15
* Frequency rate: number of accidents leading to absence per million hours worked.
** Gravity rate: number of days lost because of work-related accidents per thousand hours worked.
fRance
2004 2005 2006
Frequency rate 13.02 12.74 11.35
gravity rate 0.38 0.33 0.28
In France the frequency and gravity rates for work-related accidents
are lower by 56% and 75% respectively than the industry average
(source: UIMM 2004 - latest survey).
In general, the main causes of accidents leading to absence were
machines and processes (45.3%) and ergonomics (20.3%).
10.8% of the training hours provided within the Group in 2006
were dedicated to safety, up 0.7 point on 2005.
6. Remuneration
6.1. Changes in remuneration and social charges
(In millions euros) 2004(1) 2005 2006(2)
Payroll excluding social charges 1,698 1,616 1,675
Social charges 566 515 594
total payroll 2,264 2,131 2,269
Charge rate 33.3% 31.9% 35.46%
(1) Figures restated following the application of the new International Financial Reporting Standard.(2) Including VMA.
(In millions euros) 2004(1) 2005 2006(2)
Personnel costs (including temporary staff) 2,286 2,296 2,426
% of sales 24.8% 23.1% 23.9%
(1) Figures restated following the application of the new International Financial Reporting Standard.(2) Including VMA.
bReakdoWn by geogRaphic aRea in 2006*
(In millions euros) FranceEurope
(excl. France)Outside Europe
Payroll excluding social charges 664 548 463
Social charges 307 157 130
total payroll 971 705 593
Charge rate 46.2% 28.6% 28.1%
* Including VMA
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MAnAgEMEnt REPORt2 Social indicators
France has the highest headcount, with over 17,000
employees.
Overall wages went up an average of 2.4% in 2006, with inflation
standing at 1.5%.
17 wage agreements were signed in the Group’s 17 French
companies with employee representative bodies and unions. Of
these agreements, 11 (65%) were signed by the majority of the
representative unions, including nine (53%) that were agreed
unanimously.
6.2. Profit-sharing, incentive schemes and employee savings schemes
6.2.1. Profit-sharing
In 2006, 4,241,000 euros was set aside in a special profit-sharing
reserve by four out of the Group's 17 companies in France.
6.2.2. Incentive schemes
1,302,000 euros was paid out under incentive schemes to
employees from four of the Group's 17 companies in France in
2006.
6.2.3. Employee savings
Group savings scheme
Employees can invest sums of money from profit-sharing
and incentive schemes in a Group savings scheme set up on
November 13, 2001, under a collective agreement signed by
Group Management and four trade union organizations. Voluntary
payments can also be made with top-up payments of between
0% and 75% by Valeo. This scheme only applies to French
companies.
At December 31, 2006, 11,758 employees were members of
Valeo's Employee Savings Plan (PEG) (up 12.3% on the previous
year), representing 68.6% of the total French headcount (59.6%
in 2005), and a total amount of 33.2 millions euros split between
six investment funds.
Employee stock ownership
In late 2004, the Group set up an employee shareholders plan
entitled Valeorizon, which was subscribed to by 14% of employees
in 16 of the countries in which Valeo has operations.
1.3% of Valeo's capital is now held by its employees, making
them one of the Company’s main shareholder groups.
No new employee shareholding schemes were launched in
2006.
7. training
Trends in training over the last 3 years
The overall cost of training in 2006 amounted to 31,249,239 euros,
the equivalent of 1.9% of payroll excluding social charges.
The Group also took on 1,294 interns in 2006, 34% of whom
were women.
Work placement schemes and apprenticeships also play an
important role, with 1,126 young people taken on in this capacity
in 2006, 34% of whom were women.
343 young trainees were taken on as part of the international
internship program (VIE), 27% of whom were women.
In 2006, 85% of employees participated in at least one training
course, as part of the Group's skills development policy, compared
with 81.1% in 2005.
2004 2004 2006*
number of employees trained 51,008 52,692 56,116
number of training hours given 1,603,593 1,508,698 1,696,645
training costs €33,381,376 €31,752,527 €31,249,239
* Including VMA.
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MAnAgEMEnt REPORt 2Social indicators
bReakdoWn of houRs by type of tRaining in 2006
5.80%Companyculture
9.50%Integration
9.50%Languages
5.20%Management
2.90%Office systems
10.80%Safety27.80%
Technical - Product
2.00%Communication
1.50%Environment
24.90%Other
peRcentage of employees tRained peR socio-pRofessional categoRy
2004 2005 2006*
Engineers and managers 91.1% 87.3% 90.4%
technicians, supervisors and administrative staff 82.1% 81.8% 87.5%
Operators 77.2% 79.1% 82.7%
TOTAL 80.6% 81.1% 85%
* Including VMA.
aveRage numbeR of tRaining houRs peR socio-pRofessional categoRy
2004 2005 2006*
Engineers and managers 48 48 44
technicians, supervisors and administrative staff 43 38 33
Operators 23 20 25
TOTAL 31 29 30
* Including VMA.
A total of 1,696,645 hours of training were provided to 56,116
employees during the year, at a cost of 31,249,239 euros. The
number of employees trained is increasing steadily, particularly
among non-managerial staff, with the 2006 figure 5% higher than
in 2004.
With a view to providing training for its entire workforce (85% in
2006 compared with 81% in 2005), the Group continued to train
and certify internal trainers, thus increasing the volume of internal
and external training hours given by 12.5% in respect of both
specialist operational training and cross-disciplinary skills.
Thanks to the development of its online university
ValeoC@mpus, the Group is able to create more tailor-made
programs and combine different training methods such as online
and classroom-based training, as well as on-the-job coaching. In
turn, this enables Valeo to step-up the efficiency of its learning
tools while controlling the related costs, as illustrated by the 1.6%
reduction in costs for 2006 despite a 7.7% increase in the number
of employees trained.
Valeo C@mpus offers all employees access to training – at their
own pace and with the possibility of assistance from tutors – in
areas including languages and office systems, as well specific
modules such as “Valeo’s 5 Axes” or “Our products and processes”.
The offering is enhanced by internally-developed modules on
quality systems and methods.
As a complement to existing career plans, management also
worked on formalizing Individual Career Development Plans in
2006, based on a three-pronged approach – training, practical
application and experience. These new plans are expected to
further boost internal mobility.
A training and preparation plan for the role of supervisor has also
been developed for production workers.
Finally, the Group continued with the specialist-training approach
launched in 2004 for staff working in the Training unit within
the Human Resources department. Staff responsible for drawing
up and monitoring training plans have also been provided with
methodological tools and experience sharing systems.
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MAnAgEMEnt REPORt2 Social indicators
8. Disabled employees
Valeo amended its Code of Ethics in 2004, further strengthening its
commitment to promote the respect of people's dignity and value
in the workplace as well as equal rights for workers. Consequently,
the Valeo Group participates in measures to promote the
employment and training of disabled workers.
At December 31, 2006, 1,027 disabled employees worked for the
Group, 10% less than in 2005.
In France there were 608 disabled employees at December 31,
2006 (652 at end-2005 and 510 at end-2004), representing
3.5% of the total headcount. The number of subcontracting and
service contracts set up with centers promoting the employment
of disabled workers represented almost 3.4 million euros in 2006
(3.7 million euros in 2005).
9. Social and cultural activities
In most of the countries in which it has operations the Group
makes financial contributions to sports, educational, cultural or
charity organizations. 34.8 million euros was spent on social
benefits programs in 2006, representing 2.1% of total payroll
excluding social charges.
Valeo dedicated 11.8 million euros, or 0.7% of total payroll
excluding social charges, to social benefits programs in France in
2006 (11 million euros in 2005 and 12 million euros in 2004).
10. Subcontracting
Valeo is particularly vigilant in ensuring that its subsidiaries comply
with the fundamental principles of national and international
labor law in all their dealings with subcontractors, and that
subcontractors and suppliers apply the provisions of the Valeo
Code of Ethics relating to fundamental human rights.
Subcontracting costs amounted to 175 million euros in 2006,
covering services such as security, cleaning, maintenance and
IT and administrative support. This figure represented 10.4% of
total payroll excluding charges. Subcontracting costs in France
amounted to 98 million euros.
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MAnAgEMEnt REPORt 2Social indicators
11. the group's role in youth training and employment
11.1. International outlook
In order to assist with its recruitment requirements, Valeo has
entered into a number of partnerships with technical schools,
higher education establishments and universities in the regions
where it operates. It also participates in numerous forums and
open days in order to present the Group's activities to students
and future graduates. During 2006, Valeo took part in the Atuge
forum in Tunisia and France, the “Best” forum in Krakow (Poland),
the Franco-German forum in Strasbourg, the international
employment forum in Paris (VIE), the Careers in Europe forum
in Berlin, and open days or forums in the universities of Wuhan,
Nanjing and Changchun in China. In the United States, Valeo took
part in the Yes-Expo Program in Detroit, attended by more than
13,000 students, in order to promote the Group's technological
innovations among the student community.
11.2. In France
In order to assist with its recruitment requirements in France, Valeo
has strengthened its partnerships with educational establishments,
including:
Supélec, in connection with the PERCI program for teaching and
research in cooperation with industry;
ESIGELEC, through the signature of a framework collaboration
agreement;
UTC (Compiègne), thanks to Thierry Morin’s sponsorship of the
graduate year and the development of scientific partnerships;
•
•
•
ENSIETA (Brest), by participating in the graduation ceremony
for students sponsored by Thierry Morin;
ESTACA, by sponsoring the activities of “Elles Bougent”, an
association that promotes careers in engineering for women;
CENTRALE Paris, through participating in meetings with students
concerning the Year In Industry program and by organizing a
tour of the Nevers site.
At the same time, Valeo formed a new partnership with INSA
Lyon in the plastics processing field and played an active role in
various college and university forums, including those organized
by ENSAM, UTC, Supélec, Centrale Paris, Mines de Paris, Mines de
Douai, ESEO Angers, Ecole des Pétroles et Moteurs, ESO, HEC, ESSEC,
ESCP-EAP, Sciences Po Paris and EM Lyon. Valeo also participated
in the Ouest Avenir forum in Brest, the Rencontre forum in Lille,
and the engineers' trade fair organized by the French employment
organization Apec in Paris.
In addition, with a view to diversifying the profile of its new
recruits and making the automotive industry more attractive to
female high school students, Valeo became one of the sponsors
of the "Elles Bougent" association. It also took part in the “Women
in Leadership” forum in Paris to promote the Group’s businesses
among potential candidates.
Finally, Valeo strengthened its relations with the ParisTech network
by participating in two meetings relating to the ATHENS European
exchange program, open to non-French students from leading
Paris engineering schools.
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•
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MAnAgEMEnt REPORt2
2006 Reference document - VALEO 69
3consolidated financial statements 2006
Consolidated statements of income P. 71
Consolidated balance sheets P. 72
Consolidated statements of cash flows P. 73
Statements of recognized income and expenses P. 74
Statement of changes in stockholders’ equity P. 75
Notes to consolidated financial statements P. 76
Statutory Auditors' report on the 2006 IFRS consolidated financial statements P. 126
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CoNSolIdAted FINANCIAl StAtemeNtS 20063
2006 Reference document - VALEO 71
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Consolidated statements of income
Consolidated statements of income
(In millions of euros) Notes2006 2005
Restated (1)
2004Restated (1)
NET SALES 3.1 9,970 9,736 9,018
other operating revenues 116 98 62
TOTAL OpERATiNg REVENuES 10,086 9,834 9,080
Cost of sales (8,431) (8,177) (7,467)
gROSS MARgiN (2) 1,539 1,559 1,551
% of net sales 15.4% 16.0% 17.2%
Research and development expenditure 3.3 (661) (640) (580)
Selling expenses (195) (191) (182)
Administrative expenses (458) (452) (431)
other income and expenses 3.4 (70) (50) (98)
OpERATiNg iNCOME 271 324 322
% of total operating revenues 2.7% 3.3% 3.5%
Cost of net debt 3.5 (57) (52) (32)
other financial income and expenses 3.6 (9) (52) (37)
iNCOME BEFORE iNCOME TAXES 205 220 253
Income taxes 3.7 (75) (66) (18)
equity in net earnings of associates - 6 5
iNCOME FROM CORE ACTiViTiES 130 160 240
% of total operating revenues 1.3% 1.6% 2.6%
Non-strategic activities (3) 36 (12) 8
NET iNCOME FOR THE pERiOD 166 148 248
minority interests (5) (6) (8)
Net income attributable to equity holders of the company 161 142 240
% of total operating revenues 1.6% 1.4% 2.6%
income from core activities attributable to equity holders of the company
Basic earnings per share (in euros)• 1.62 1.95 2.82
diluted earnings per share (In euros)• 1.62 1.93 2.63
Net income attributable to equity holders of the company
Basic earnings per share (in euros)• 3.8.1 2.10 1.80 2.92
diluted earnings per share (In euros)• 3.8.2 2.09 1.79 2.71
(1) The statements of income for 2004 and 2005 have been restated from those published on February 9, 2006, as described in notes 2.1 and 3.3.(2) Gross margin represents net sales (excluding other operating revenues) less cost of sales.(3) See note 2.1.
The notes are an integral part of the consolidated financial statements.
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Consolidated balance sheets
Consolidated balance sheets
(In millions of euros) Notes2006 2005
Restated (1)
2004Restated (1)
ASSETS
Goodwill 4.1 1,415 1,484 1,158
other intangible assets 4.2 528 522 281
Property, plant and equipment 4.3 1,918 2,041 1,945
Investments in associates 4.4 103 116 96
Non-current financial assets 4.5 24 28 14
deferred tax assets 4.6 96 100 83
Non-current assets 4,084 4,291 3,577
Inventories 4.7 647 654 565
Accounts and notes receivable 4.8 1,834 1,906 1,726
other current assets 311 243 228
taxes recoverable 64 51 58
other current financial assets 5.2.5 10 24 -
Assets held for sale 4.3 20 11 -
Cash and cash equivalents 4.11 618 949 868
Current assets 3,504 3,838 3,445
TOTAL ASSETS 7,588 8,129 7,022
LiABiLiTiES AND EquiTy
Share capital 233 233 251
Additional paid-in capital 1,387 1,385 1,617
Retained earnings 94 56 (87)
Stockholders’ equity 1,714 1,674 1,781
minority interests 38 43 57
Stockholders’ equity including minority interests 4.9 1,752 1,717 1,838
Provisions - non-current portion 4.10 937 1,123 1,000
long-term debt 4.11 1,274 1,303 1,027
deferred tax liabilities 4.6 1 9 13
Non-current liabilities 2,212 2,435 2,040
Accounts and notes payable 1,955 1,925 1,685
Provisions - current portion 4.10 418 431 298
taxes payable 76 82 83
other liabilities 836 792 715
Current maturities of long-term debt 4.11 54 581 188
other current financial liabilities 5.2.5 11 9 -
Short-term debt 4.11 274 157 175
Current liabilities 3,624 3,977 3,144
TOTAL LiABiLiTiES AND EquiTy 7,588 8,129 7,022
(1) The balance sheets for 2004 and 2005 have been restated from those published on February 9, 2006, as described in note 6.
The notes are an integral part of the consolidated financial statements.
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CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Consolidated statements of cash flows
Consolidated statements of cash flows
(In millions of euros) Notes 2006 2005 2004
CASH FLOwS FROM OpERATiNg ACTiViTiES (1)
Net income for the period 166 148 248
equity in net earnings of associates - (6) (5)
Net dividends received from associates 4 4 3
expenses (income) with no cash effect 4.12 411 518 516
Cost of net debt 59 54 33
Income taxes (current and deferred) 77 60 17
gross operating cash flows 717 778 812
Income taxes paid (85) (65) (28)
Changes in working capital 4.12 48 107 45
Net cash provided by operating activities 680 820 829
CASH FLOwS FROM iNVESTiNg ACTiViTiES (1)
outflows relating to acquisitions of intangible assets (165) (145) (122)
outflows relating to acquisitions of property, plant and equipment (494) (441) (413)
Inflows relating to disposals of property, plant and equipment 17 41 19
Net change in non-current financial assets 32 (3) -
Impact of changes in scope of consolidation 2.6 124 (466) (73)
Net cash used in investing activities (486) (1,014) (589)
CASH FLOwS FROM FiNANCiNg ACTiViTiES (1)
dividends paid to parent company stockholders (84) (91) (85)
dividends paid to minority interests in consolidated subsidiaries (5) (5) (5)
equalization tax on dividends - - (101)
Issuance of share capital 4 1 33
Sale (purchase) of treasury shares 4 8 -
Issuance of long-term debt 3 826 26
Grants and contributions received 48 39 26
Net outflows related to capital reductions - (252) -
Net interest paid (60) (33) (28)
Repayment in long-term debt (553) (196) (36)
Net cash provided by (used in) financing activities (643) 297 (170)
Effect of exchange rate changes on cash 1 28 (1)
NET CHANgE iN CASH AND CASH EquiVALENTS (448) 131 69
Cash and cash equivalents at beginning of year 792 661 (2) 624
Cash and cash equivalents at end of year 344 792 693 (2)
of which :Cash and cash equivalents• 618 949 868
Short-term debt• (274) (157) (175)
(1) The impact of the sale of the Electric Motors & Actuators business is described in note 2.1.(2) The difference between net cash and cash equivalents at December 31, 2004 and at January 1, 2005 is due to the application of IAS 32 at January 1, 2005 (treasury
shares are now deducted from stockholders’ equity).
The notes are an integral part of the consolidated financial statements.
2006 Reference document - VALEO74
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Statements of recognized income and expenses
Statements of recognized income and expenses
(In millions of euros)
2006 2005Restated (1)
2004Restated (1)
exchange differences on translation of foreign operations (69) 135 6
Actuarial gains (losses) on defined benefit plans 27 (50) (42)
Cash flow hedges: Gains (losses) taken to equity• 7 23 -
transferred to profit and loss for the period• (19) (8) -
Net investment hedges: Gains (losses) taken to equity• - (3) -
Remeasurement of available-for-sale financial assets - - -
Income taxes on items recognized directly in equity (1) 5 1
income and expenses recognized directly through equity (55) 102 (35)
Net income for the period 166 148 248
Total recognized income and expenses for the period 111 250 213
Attributable to: equity holders of the company• 109 240 208
minority interests• 2 10 5
Corrections of errors (2) - - (9)
Attributable to:
equity holders of the company• - - (9)
minority interests• - - -
(1) The statements of recognized income and expenses for the periods to December 31, 2004 and December 31, 2005 have been restated from those published on
February 9, 2006, as described in note 6.(2) See note 6.
The notes are an integral part of the consolidated financial statements.
2006 Reference document - VALEO 75
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Statement of changes in stockholders’ equity
Statement of changes in stockholders’ equity
Number of shares (In millions of euros)
Share capital
Additi- onal
paid-in capital
Transl-ation
adjust-ment
Retained earnings
Stockholders’ equity
Minority interests
Stockholders’ equity
including minority interests
82,133,728Stockholders’ equity at January 1, 2004 (Restated) (1) 246 1,589 - (90) 1,745 97 1,842
dividends - - - (85) (85) (7) (92)
equalization tax on dividends (2) - - - (101) (101) - (101)
1,575,296 employee share issue 5 28 - - 33 - 33
Share-based payments - - - 5 5 - 5
Income and expenses recognized directly through equity - - 9 (41) (32) (3) (35)
Net income - - - 240 240 8 248
other movements (3) - - - (24) (24) (38) (62)
83,709,024Stockholders’ equity at December 31, 2004 (Restated) (1) 251 1,617 9 (96) 1,781 57 1,838
(1,037,804)Total impact of financial instruments (iAS32, iAS39) - - - 27 27 - 27
82,671,220Stockholders’ equity at January 1, 2005 (Restated) 251 1,617 9 (69) 1,808 57 1,865
dividends - - - (91) (91) (5) (96)
230,100 treasury stock - - - 8 8 - 8
(6,250,000) Capital reduction (4) (19) (233) - - (252) - (252)
51,333 Share-based payments 1 1 - 7 9 - 9
Income and expenses recognized directly through equity - - 131 (33) 98 4 102
Net income - - - 142 142 6 148
other movements (3) - - - (48) (48) (19) (67)
76,702,653Stockholders’ equity at December 31, 2005 (Restated) (1) 233 1,385 140 (84) 1,674 43 1,717
dividends - - - (84) (84) (4) (88)
121,000 treasury stock - - - 4 4 - 4
Capital increase - - - - - 1 1
70,260 Share-based payments - 2 - 11 13 - 13
Income and expenses recognized directly through equity - - (66) 14 (52) (3) (55)
Net income - - - 161 161 5 166
other movements - - - (2) (2) (4) (6)
76,893,913Stockholders’ equity at December 31, 2006 233 1,387 74 20 1,714 38 1,752
(1) Stockholders’ equity at January 1, 2004, December 31, 2004 and December 31, 2005 has been restated from the amounts published on February 9, 2006, as described
in note 6.(2) This item includes:
- 18 million euros in equalization tax relating to dividends paid in 2004;
- 83 million euros in equalization tax which became due (on dividends paid in 2001 and 2002) further to the corporate income tax rebate obtained in 2004.(3) This item includes the impact of minority interest buyouts relating to Valeo Climatisation in 2004, as well as to Valeo Zexel China Climate Control and Valeo Thermal
Systems Japan Corp. in 2005.(4) Capital reduction carried out following the purchase by Valeo of around 7.5% of its own shares, in connection with a public share buyback offer and a simplified public
tender offer.
The notes are an integral part of the consolidated financial statements.
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Notes to consolidated financial statements
1 - Accounting policies .......................................................................................................................................................................... p. 77
2 - Changes in the scope of consolidation ......................................................................................................................................... p. 83
3 - Notes to the statement of income ................................................................................................................................................ p. 85
4 - Notes to the balance sheet ............................................................................................................................................................. p. 89
5 - Additional disclosures ................................................................................................................................................................... p. 108
6 - Restatement of 2004 and 2005 financial information .......................................................................................................... p. 118
7 - list of consolidated companies ................................................................................................................................................... p. 119
Notes to consolidated financial statements
2006 Reference document - VALEO 77
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
1 - Accounting policies
The consolidated financial statements of the Valeo Group for the
year ended December 31, 2006 include the accounts of Valeo,
its subsidiaries and the Group’s share of associates and jointly
controlled entities.
Valeo is an independent Group fully focused on the design,
production and sale of components, systems and modules for
the automobile sector. It is one of the world’s top automotive
suppliers.
Valeo is a French legal entity, listed on the Paris Stock Exchange,
whose head office is located at 43, rue Bayen, 75017 Paris.
Valeo’s consolidated accounts were authorized for issue by the
Board of Directors on February 12, 2007.
They will be submitted for approval to the Annual General Meeting
of shareholders which will be convened on May 21, 2007.
1.1 - Accounting standards applied
Under European Union regulation 1606/2002 of July 19, 2002,
the consolidated financial statements have been prepared in
conformity with International Financial Reporting Standards (IFRS)
approved by the European Union.
The Group has elected for early application, respectively as of
January 1, 2004 and 2005, of the two following amendments to
IFRS that are obligatorily applicable as from January 1, 2006:
the amendment to IAS 19 introducing the option to recognize
actuarial gains and losses on defined benefit pension plans
in reserves;
the amendment to IAS 39 relating to hedge accounting of
forecast inter-company transactions.
New accounting standards that are not yet obligatorily applicable,
that have not been adopted early and that may have an impact
on the Group’s financial statements are as follows:
IFRS 7 “Financial Instruments: Disclosures”, applicable as from
January 1, 2007;
IFRS 8 “Operating Segments”; this standard, which has not yet
been approved by the European Union, is obligatorily applicable
as from 2009.
The potential impacts of these two standards on the Group’s
financial statements are currently being analyzed.
1.2 - Basis of preparation
The financial statements are presented in euros and are rounded
to the closest million.
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In addition they have been prepared in accordance with the
principal assumptions of IFRS:
true and fair view;
going concern;
accrual basis of accounting;
consistency of preparation;
materiality and aggregation.
Preparation of the financial statements requires Valeo to make
estimates and assumptions which could have an impact on the
amounts at which assets, liabilities, income and expenses are
stated. These estimates, and the assumptions underlying them,
have been made on the basis of past experience and of other
factors considered to be reasonable in the circumstances. They
thus serve as the basis for the judgment made in determining
the carrying amounts of assets and liabilities which could not be
determined directly from other sources. The definitive amounts
that will be stated in Valeo’s future financial statements may be
different from the amounts currently estimated. These estimates
and assumptions are reviewed on a continuous basis.
1.3 - Consolidation methods
The consolidated financial statements include the accounts of
Valeo and companies under its direct and indirect control.
The proportionate consolidation method is used when the
contractual arrangements for control of a company specify that
it is under the joint control of the two venturers. Companies of
this type are called joint ventures. In this case, the Group’s share
of each asset and liability and each item of income and expense
is aggregated, line-by-line, with similar items in its consolidated
financial statements.
All significant inter-company transactions are eliminated (for
joint ventures the elimination is performed to the extent of the
Group’s ownership interest in the company), as are gains on
inter-company disposals of assets, inter-company profits included
in inventories and inter-company dividends.
Companies over which Valeo has the power to exercise significant
influence are accounted for by the equity method. Valeo is
considered to exercise significant influence over companies in
which the Group owns more than 20% of the voting rights. This
method consists of replacing the book value of the investments
by the Group’s equity in the associate’s underlying net assets,
including goodwill.
Companies acquired during the year are consolidated as from
the date at which the Group exercises (sole or joint) control or
significant influence.
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1.4 - Foreign currency translation
Each Group company maintains its accounting records in its
functional currency. A company’s functional currency is the
currency of the principal economic environment in which it
operates, generally being the local currency.
Transactions carried out in a currency other than the company’s
functional currency are translated using the rate prevailing at the
transaction date. Monetary assets and liabilities denominated in
foreign currency are translated at the year-end exchange rate.
Non-monetary assets and liabilities denominated in foreign
currency are recognized at the historical exchange rate prevailing
at the transaction date. Differences arising from the translation
of foreign currency transactions are recognized in income, with
the exception of differences relating to loans and borrowings
which are in substance an integral part of the net investment in
a foreign subsidiary. These are recorded, for their amount net of
tax, in consolidated stockholders’ equity under translation reserves
until such time as the net investment is disposed of, at which
time they are recognized in income.
The financial statements of foreign subsidiaries whose functional
currency is not the euro are translated into euros as follows:
assets and liabilities are translated at the year-end exchange
rate;
income statement accounts are translated into euros at the
exchange rates applicable at the transaction dates or, in
practice, at the average exchange rate for the period, as long
as this is not rendered inappropriate as a basis for translation
by major fluctuations in exchange rates during the period;
unrealized gains or losses arising from the translation of the
financial statements of foreign subsidiaries are recorded
through stockholders’ equity.
1.5 - operating revenues
Operating revenues are comprised of net sales and other
operating revenues.
Net sales primarily include sales of finished goods and also
include all tooling revenues. Sales of finished goods and tooling
revenues are recognized at the date on which the Group transfers
substantially all the risks and rewards related to ownership to
the buyer and is no longer involved in the management or in
the effective control of the goods sold. In cases where the Group
retains control of the future risks and rewards related to tooling,
any customer contributions are recognized over the duration of
the project, over a maximum of 4 years.
Other operating revenues consist of all revenues for which the
associated costs are recorded below the gross margin line. They
mainly comprise sales of prototypes and contributions received from
customers to development costs. Such contributions are deferred as
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appropriate and are taken to income over the period of sale of the
corresponding products, over a maximum of 4 years.
1.6 - Gross margin and operating income
Gross margin is defined as the difference between net sales and
cost of sales. Cost of sales primarily corresponds to the cost of
goods sold.
Operating income includes all income and expenses other than:
cost of net debt;
other financial income and expenses;
income taxes;
equity in net earnings of associates;
income from non-strategic activities.
In order to facilitate interpretation of the statement of income
and of Group performance, unusual items that are material to the
consolidated financial statements are separately presented within
operating income under “Other income and expenses”.
1.7 - Financial income and expenses
Financial income and expenses are comprised, firstly, of the
cost of net debt and, secondly, of other financial income and
expenses.
The cost of net debt corresponds to interest paid on debt less
interest earned on cash and cash equivalents.
Other financial income and expenses notably include:
foreign exchange gains and losses, including the impact of
derivative instruments used as hedges;
charges to provisions for credit risk as well as the cost of credit
insurance;
the effect of unwinding discount on provisions, including
discount on provisions for pensions and other employee
benefits;
and the expected return on pension and other post-employment
benefit plan assets.
1.8 - earnings per share
Basic earnings per share are calculated by dividing consolidated net
income by the weighted average number of shares outstanding
during the year, excluding the average number of shares held
in treasury stock.
Diluted earnings per share are calculated by including potentially
dilutive instruments such as stock options or convertible bonds,
when such instruments have a dilutive effect, which is particularly
the case for stock subscription options when their exercise price
is below the market price (average Valeo share price over the
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CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
year). When funds are received on the exercise of these rights
(such as on the subscription of shares), they are deemed to be
allocated in priority to the purchase of shares at market price.
This calculation method – known as the treasury stock method
– serves to determine the “unpurchased” shares to be added
to the shares of common stock outstanding for the purposes of
computing the dilution. When funds are received at the date of
issue of dilutive instruments (such as for convertible bonds), net
income is adjusted for the net of tax interest savings which would
result from the conversion of the bonds into shares.
1.9 - Business combinations
All identifiable assets acquired and liabilities and contingent
liabilities assumed, are recognized at their fair value at the date of
transfer of control to the Group (acquisition date), independently
of recognition of any minority interests.
The cost of a business combination is equal to the acquisition
price, plus any costs directly attributable to the acquisition. Any
excess of the acquisition cost over the fair value of the net assets
acquired and liabilities and contingent liabilities recognized, is
recorded in assets as goodwill. Goodwill is not amortized but is
rather subject to an impairment test at least once a year.
1.10 - Intangible assets
Innovation can be analyzed as either research or development.
Research is planned investigation undertaken with the prospect of
gaining new scientific or technical knowledge and understanding.
Development is the application of research findings with a
view to creating new products, before the start of commercial
production.
Research costs are recognized in expenses in the year they are
incurred.
Development expenditure is capitalized where the Group can
demonstrate:
that it has the intention, and the technical and financial
resources to complete the development;
that the intangible asset will generate future economic
benefits;
and that the cost of the intangible asset can be measured
reliably.
Capitalized development costs are then amortized over a
maximum period of 4 years from the start of volume production.
Impairment losses may, as required, be recognized in respect of
capitalized development costs.
Other intangible assets are carried at cost less any amortization
and impairment losses recognized. They are amortized on a
straight-line basis over their expected useful lives.
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Intangible assets with indefinite useful lives are subject to an
impairment test in accordance with the methodology set out in
note 1.12. Intangible assets which are not yet in use at year-end
are also subject to such impairment tests.
1.11 - Property, plant and equipment
Property, plant and equipment are carried at cost, excluding
interest expense, less accumulated depreciation and impairment
losses. Material revaluations, recorded in accordance with laws
and regulations applicable in countries in which the Group
operates, have been eliminated in order to ensure the consistency
of valuation method of all fixed assets in the Group.
Tooling which is specific to a given project is subjected to an
economic analysis of contractual relations with the automaker in
order to determine which party has control over the future risks
and rewards relating to the specific tooling. When Valeo has such
control, tooling is capitalized in the balance sheet. In the event
that Valeo does not have control, it is included in inventories until
sold. Any resulting loss on the tooling contract (corresponding to
the difference between the automaker’s contribution and the
cost of the tooling) is provided for as soon as the amount of the
loss is known.
When the terms of a lease, entered into by the Group as lessee,
transfer substantially all risks and rewards inherent in ownership
to the Group, the corresponding asset is recognized in property,
plant and equipment in the Group’s balance sheet at a cost equal
to the lesser of its fair value and the present value of future
minimum lease payments. Such assets are subject to depreciation
and, if necessary, provisions for impairment. The corresponding
obligation is recorded as a liability.
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets concerned:
buildings 20 years
fixtures and fittings 8 years
machinery and equipment 4 to 8 years
other fixed assets 3 to 8 years
Land is not depreciated.
Capital grants received are recognized in liabilities and are written
back to income proportionately to the recognition of depreciation
of the corresponding assets.
1.12 - Impairment of assets
At each balance sheet date, the Group assesses whether there is
an indication that an asset (other than a financial asset), a cash
generating unit (CGU – as defined by IAS 36), or a group of CGUs
may be impaired.
CGUs are autonomous management entities at the level of
which the resource allocation process is performed and results
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
are analyzed. They generally correspond to production sites or to
groups of production sites.
Intangible assets with indefinite useful lives are systematically
subjected to an impairment test at least once a year. If the
asset’s carrying amount is greater than its recoverable amount,
it is written down to its recoverable amount.
The recoverable amount of an asset or a CGU is the higher of its
fair value less costs to sell and its value in use. The method applied
is the discounted present value of future cash flows expected to
derive from an asset or a CGU. The discount rate used is the rate
that reflects both the current assessment of the time value of
money and risks specific to the asset (or group of assets) for which
future cash flows estimates have not been adjusted.
Impairment losses are allocated to CGU assets in the following
order: firstly to the goodwill allocated to the CGU and then to the
other CGU assets in proportion to their carrying amounts.
Impairment losses recognized on goodwill balances are never
reversed. For other assets, when an indicator shows that the
asset may no longer be impaired, the impairment loss previously
recognized is reversed in an amount so that the new carrying
amount is the lesser of the recoverable amount and the carrying
amount that the asset would have had if the impairment had not
been recognized in the first place.
1.13 - Financial assets and liabilities
Financial assets include non-consolidated investments, loans,
accounts and notes receivable, derivatives and cash and cash
equivalents. Financial liabilities include debt, accounts and notes
payable, derivatives and short-term bank debt.
Recognition and measurement principles in respect of financial
assets and liabilities are defined in IAS 32 and IAS 39. Valeo has
elected to apply these standards with effect from January 1, 2005.
The impact of the change in accounting policy was recorded in
equity at that date.
1.13.1 - Financial assets at fair value through income
Cash and cash equivalents are comprised of marketable securities
such as money-market funds, deposits, and very short-term risk-
free securities which can be easily sold or converted into cash as
well as cash at bank. Such investments are generally held to be
sold within a short timeframe.
1.13.2 - Trading receivables and payables
Trading receivables and payables are initially recognized at fair value.
The fair value of accounts receivable and accounts payable is deemed
to be their nominal amount in view of the fact that periods to
payment are generally less than 3 months. Such trading receivables
and payables are subsequently valued at amortized cost.
Accounts receivable can be subject to provisions for impairment
in value. If an event of loss is identified during the financial year
subsequent to initial recognition of the receivable, the required
provision will be calculated by comparing the estimated future
cash flows to the carrying amount in the balance sheet. Provisions
are recognized through other financial expenses if they are related
to a risk of insolvency of the debtor.
1.13.3 - Non-current financial assets
Non-current financial assets include investments and loans and
other long-term financial assets:
investments are available-for-sale financial assets. They are
initially recognized on origination at fair value. Any subsequent
change in fair value is recognized through stockholders’ equity
or through income in the event of a prolonged decline in
value;
long-term loans are held-to-maturity financial assets. They
are initially recognized at fair value on origination and are
subsequently valued on an amortized cost basis;
other non-current financial assets are securities with maturities
greater than 3 months. These securities are recognized in non-
current financial assets at fair value, with changes in fair value
being recognized through income. Such securities can be easily
sold and are risk-free.
1.13.4 - Debt
Bonds and other loansBonds and loans are valued at amortized cost. The amount of
interest recognized in financial expenses is calculated by applying
the loan’s effective interest rate to its carrying amount. Any
difference between the expense calculated using the effective
interest rate and the actual interest payment impacts the value
at which the loan is recognized.
Hedge accounting is generally applied to financial debt hedged
by interest rate swaps. Such loans are revalued to their fair value,
which is related to changes in interest rates.
OCEANEBonds convertible into new shares or exchangeable for new or
existing shares (OCEANE) grant bearers an option for conversion
into common shares of Valeo. They constitute a compound
financial instrument which, under IAS 32, must be split into its
two components:
the value of the debt component is calculated by discounting
the future contractual cash flows at the market rate applicable
at the date of issue of the bond (taking account of credit risk
at the date of issue) for a similar instrument with the same
characteristics but without a conversion option;
the value of the equity component is calculated as the
difference between the proceeds of the bond issue and the
amount of the debt component.
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CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
Short-term bank debtThis caption mainly includes credit balances with banks and
commercial paper issued by Valeo for its short-term financing
needs. Commercial paper has a maximum maturity of 3 months
and is valued at amortized cost.
1.13.5 - Recognition and measurement of derivatives
Derivatives are recognized in the balance sheet at fair value
under the other current financial assets and other current financial
liabilities captions. The accounting impact of changes in fair value
of derivatives differs depending on whether hedge accounting
is applied or not.
When hedge accounting is applied:
for fair value hedges of recognized assets and liabilities, the
hedged portion of these items is stated at fair value. Changes
in this fair value are recognized through income and offset,
for the effective portion, the symmetrical changes in the fair
value of the derivatives;
for cash flow hedges, the effective portion of the change in
the fair value of the derivative is recognized directly through
equity and the ineffective portion is taken to other financial
income and expenses;
for hedges of net investments in foreign subsidiaries, the
change in fair value of the hedging instruments is taken to
equity (for the effective portion) until the disposal of the net
investment.
In cases where hedge accounting is not applied, changes in the
fair value of derivatives are recognized in other financial income
and expenses.
Foreign currency derivativesChanges in the value of derivatives are generally recognized in
financial income and offset, as applicable, by changes in the fair
value of the underlying receivables and payables. In certain cases,
the Group applies hedge accounting for highly probable future
flows as from the inception of the hedging relationship: changes
in the fair value of the derivatives are then recognized through
equity for the effective component of the hedge. Amounts that
flowed through equity are subsequently taken to operating
income when the underlying hedged item affects operating
income. The ineffective portion is recognized in other financial
income and expenses.
Metals derivativesThe Group applies cash flow hedge accounting. The effective
portion of the hedge is reclassified from equity to operating
income when the hedged position affects income. The ineffective
portion is recognized in other financial income and expenses.
interest rate derivativesThe Group generally applies fair value hedge accounting. Changes
in the fair value of debt, related to changes in interest rates,
and symmetrical changes in the fair value of the interest rate
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derivatives are recognized in other financial income and expenses
for the period.
In certain cases, interest rate derivatives are not designated as
hedging instruments in the meaning ascribed to that term by
IAS 39. In such cases changes in fair value are recognized in other
financial income and expenses for the period.
1.14 - Inventories
Inventories are stated at the lower of cost or net realizable value.
Cost includes the cost of raw materials, labor and other direct
manufacturing costs on the basis of normal activity levels. These
costs are determined by the “First in-First out” (FIFO) method
which, due to the rapid inventory turnover rate, approximates
the latest purchase cost at the balance sheet date.
A provision for impairment in value is recorded by comparison
to net realizable value.
1.15 - Income taxes
Income tax expense includes current income taxes and deferred
taxes of consolidated companies. Deferred taxes are accounted for
using the liability method on all temporary differences between
the tax base and the carrying amount of assets and liabilities in
the consolidated financial statements and on all tax loss carry
forwards. The main temporary differences relate to provisions
for pensions and other employee benefits and other temporarily
non-deductible provisions. Deferred tax assets and liabilities are
calculated using enacted, or virtually enacted, tax rates that will
be in force at the time of reversal of the temporary differences.
Deferred tax assets are only recognized to the extent that it
appears probable that the Valeo Group will generate future
taxable profits against which these tax assets will be able to be
recovered.
The Group reviews the probability of future recovery of deferred
tax assets on a periodic basis. This review can, if necessary, lead
the Group to no longer recognize deferred tax assets that it had
recognized in prior years.
Taxes payable and tax credits receivable on planned dividend
distributions by subsidiaries are recorded in the statement of
income.
1.16 - Share-based payments
Employee stock option plans and plans for granting free shares
and Stock Appreciation Rights (SARs) to employees lead to
recognition of a personnel expense. This expense corresponds
to the fair value of the instrument issued. It is recognized over
the rights’ vesting period. Fair value is estimated on the basis of
valuation models adapted to the characteristics of the instruments
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
(Black-Scholes-Merton model for options, Monte Carlo method
for SARs, etc.).
1.17 - Pensions and other employee benefits
Pensions and other employee benefits cover two categories of
employee benefits:
post-employment benefits which include statutory retirement
bonuses, supplementary pension benefits and coverage of
certain medical costs for retirees and early retirees;
other long-term benefits payable (during employment),
corresponding primarily to long-service bonuses.
These benefits are broken down into:
defined contribution plans, under which the employer pays
fixed contributions on a regular basis and has no legal or
constructive obligation to pay further contributions;
defined benefit plans, under which the employer guarantees
a future level of benefits.
The provision for pensions and other employee benefits (including
long-term benefits) is equal to the present value of Valeo’s future
benefit obligation less, where appropriate, the fair value of plan
assets in funds allocated to finance such benefits. The calculation
of this provision is based on valuations performed by independent
actuaries using the projected unit credit method and final salaries.
These valuations incorporate both financial assumptions (discount
rate, expected rate of return on plan assets, salary increases, rise
in medical costs) and demographic assumptions, including rate of
employee turnover, retirement age and life expectancy.
The effects of differences between previous actuarial assumptions
and what has actually occurred (experience adjustments) and
the effect of changes in actuarial assumptions (assumption
adjustments) give rise to actuarial gains and losses. Such actuarial
gains and losses arising on long-term benefits during employment
are fully recognized in the income statement at each balance
sheet date. However as regards post-employment benefits,
actuarial gains and losses are recognized directly through equity
in the financial year in which they arise, in application of the
option provided by IAS 19 as amended in December 2004.
1.18 - Provisions
A provision is recognized when the Group has a legal or
constructive obligation resulting from a past event, where it is
probable that future outflows of resources embodying economic
benefits will be necessary to extinguish the obligation and
where the obligation can be estimated reliably. Commitments
resulting from restructuring plans are recognized when the
detailed plans have been prepared and when commencement of
implementation, or an announcement, has created a reasonable
expectation among the individuals concerned.
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Provision is made for estimated product warranty costs at the time
of sale of the products. The corresponding expense is recognized
in cost of sales.
When the effect of the time value of money is material, the
amount of the provision is discounted using the risk free rate
applicable to the corresponding country and maturity. The
increase in the provision related to the passage of time (termed
“unwinding”) is recognized through income in other financial
income and expenses.
1.19 - Assets held for sale and non-strategic operations
When the Group expects to recover the value of an asset, or a
group of assets, through sale rather than through use, such assets
are presented separately under the “Assets held for sale” caption
in the balance sheet. Any liabilities related to such assets are also
presented under a separate caption in balance sheet liabilities.
Assets classified as held for sale are valued at the lower of their
carrying amount and their estimated sale price “less costs to
sell”. Such assets are thus no longer subject to depreciation and
amortization. Any impairment losses and the result of sale of
these assets are recognized through Group operating income.
In accordance with IFRS 5, non-strategic operations represent a
major line of business of the Group, an operation that forms part
of a single coordinated plan to dispose of a line of business or a
company acquired solely with a view to resale. Classification as
a non-strategic operation occurs at the date of sale or at a prior
date if the business meets the criteria to be recognized as an
asset held for sale. The results of these operations, as well as
any capital gains or losses on disposal, are presented, net of tax,
under a separate income statement caption.
1.20 - Segment reporting
According to IAS 14, segment reporting should be provided at two
levels – a primary and secondary level. The choice of segments
and of levels of disclosure depends on the differences in terms of
risk and return and on the organizational structure of the Group.
The Group’s risks and returns are based on the nature of its
products or services, of its production processes, the type of clients
to whom the products or services are to be sold, the methods
used to distribute the products or provide the services and the
nature of the regulatory environment. They also depend on the
countries in which the Group operates and markets its products,
raw material costs used in the production cycle and the Group’s
capacity to innovate in order to offer its clients products that meet
market expectations.
Analysis of these factors demonstrates that they are common to
the Group’s business as a whole and different business segments
cannot be separately identified within the meaning of IAS 14.
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CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
The Group is organized in a multi-dimensional manner:
the Group is decentralized into autonomous Divisions in which
the allocation of resources and performance measurement are
carried out. However, as there are approximately one hundred
such divisions, none of them can be considered to be material
within the meaning of IAS 14;
the Divisions benefit from the support of Valeo’s functional
networks and Branches, which oversee the coherence of the
Group’s Product Families; they also exploit synergies with
the Innovation Domains, and are coordinated by National
Directorates.
In 2006, the Group’s organization was unchanged from 2005,
which saw the strengthening of the role of the three Innovation
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Domains and the grouping together of all the industrial branches
under a single management team.
Analysis of this organizational structure does not allow any specific
dimension of the Group’s business to be favored over others from
the perspective of IAS 14.
In consequence, the above matters lead:
to the conclusion that the Group as a whole operates as a single
business segment (“Automotive equipment”);
to the provision, for the secondary level of segment reporting, of
disclosures by geographical area, supplemented by information
in respect of the most appropriate criteria for understanding of
the Group’s business.
•
•
2 - Changes in the scope of consolidation
2.1 - Sale of electric motors & Actuators business
In December 2006, Valeo sold its Electric Motors & Actuators
business to the Japanese group Nidec. The sale price for this
business was 142 million euros. This transaction generated a
capital gain of 46 million euros before tax and 41 million euros
after tax. This positive impact is recognized in the statement of
income for 2006 under “Non-strategic activities”.
The Electric Motors & Actuators business was already classified
in “Non-strategic activities” in the interim financial statements
published at June 30, 2006, in accordance with the criteria set out
in IFRS 5. The profit after tax of the Electric Motors & Actuators
business for the three financial years 2004, 2005 and 2006 is
thus presented in aggregate under “Non-strategic activities” in
the statement of income.
In accordance with IFRS 5, all assets and liabilities of this business are
not aggregated under specific balance sheet captions at December 31,
2004 and 2005. In 2006, at the date of disposal of the Electric Motors
& Actuators business, the assets and liabilities related to this business
exited the Group’s consolidated balance sheet.
the components of the income statement caption “Non-strategic activities” are as follows:
(In millions of euros) 2006 2005 2004
Income of non-strategic activities before income taxes (4) (12) 12
Pre-tax capital gain on disposal of non-strategic activities 46 - -
Income taxes on income of non-strategic activities (1) - (4)
Income taxes on capital on disposal of non-strategic activities (5) - -
Net income of non-strategic activities 36 (12) 8
Income from non-strategic activities attributable to equity holders of the company is analyzed as follows:
(In millions of euros) 2006 2005 2004
income from non-strategic activities attributable to equity holders of the company
Basic earnings per share (In euros)• 0.47 (0.15) 0.10
diluted earnings per share (In euros)• 0.47 (0.14) 0.09
2006 Reference document - VALEO84
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
Cash flows from non-strategic activities are analyzed as follows:
(In millions of euros) 2006 2005 2004
Cash flows from operating activities - non-strategic activities 4 12 15
Cash flows used in investing activities - non-strategic activities (6) (10) (13)
Cash flows from financing activities - non-strategic activities 19 5 24
Change in net cash 17 7 26
The impacts of the disposal of the Electric Motors & Actuators
business on consolidated net sales and on the Group consolidated
balance sheet are analyzed respectively in paragraphs 3.1 and
2.6.
2.2 - Sale of Parrot
In the context of Parrot’s IPO, Valeo decided to sell its 14.8%
interest in the company. The capital gain on the sale of this
non-consolidated investment was recognized in “Other financial
income and expenses” for an amount of 24 million euros.
2.3 - Investment in threestar, a Korean company
In February 2006, Valeo acquired 50% of Threestar, the leading
Korean manufacturer of automobile radiators. Valeo Samsung
Thermal Systems, created through this agreement, was
proportionally consolidated from January 1, 2006, with the
remaining 50% of the capital being owned by the Samsung
Climate Control Group. This company contributed 9 million euros
to Group sales in 2006.
2.4 - disposal of Zexel logitec
Valeo sold Zexel Logitec on June 30, 2006, and the company was
deconsolidated as of that date. Zexel Logitec contributed 30 million
euros to Group sales in 2006 for the period from January 1 to
June 30. It contributed 53 million euros to Group sales in 2005.
The capital gain recognized by the Group in the year in “Other
income and expenses” amounted to 14 million euros.
2.5 - other transactions carried out in 2006
2.5.1 - ichikoh
Valeo raised its interest in Ichikoh, one of the largest Japanese
lighting systems suppliers, from 28.2% at December 31, 2005
to 29.4% at December 31, 2006. Ichikoh is accounted for by the
equity method.
2.5.2 - Valeo Raytheon Systems inc.
Valeo continued to invest in Raytheon Systems Inc., increasing
its stake from 73.1% at December 31, 2005 to 77.2% at
December 31, 2006. Valeo owns Raytheon Systems Inc. jointly
with the Raytheon Group, and accounts for its interest by the
proportional consolidation method because of the characteristics
of the partnership agreement.
2.5.3 - investments in China
In the first half of 2006, Valeo created a Chinese joint-venture
with Ichikoh and increased its interest in the Chinese company
Hubei Valeo Auto Lighting Systems Co. Ltd. from 75% to 100%.
These two transactions did not have material impacts on Group
sales in 2006.
2006 Reference document - VALEO 85
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
2.6 - Impact of changes in scope of consolidation on the consolidated balance sheet
the assets, liabilities and contingent liabilities that have been acquired or sold in 2006, 2005 and 2004, measured at their
date of entry into the Group or exit from the Group, are analyzed below and reconciled with the corresponding cash flows:
(In millions of euros)
2006 2005 2004
Disposal of Electric Motors
& Actuators
Other Total
Goodwill related to businesses sold (23) (3) (26) - -
other intangible assets (10) (3) (13) 198 1
Property, plant and equipment (58) 2 (56) 150 5
Investments in associates - 3 3 8 (1)
deferred tax assets (2) - (2) 1 -
Current assets (56) (5) (61) 298 9
Stockholders’ equity (50) (13) (63) 48 24
long-term debt 1 - 1 (54) (2)
other non-current liabilities 33 - 33 (218) (3)
Current liabilities 43 5 48 (244) (6)
Net assets acquired (sold) (122) (14) (136) 187 27
minority interests - 4 4 19 38
Total net assets acquired (sold) after minority interests (122) (10) (132) 206 65
Goodwill on entities acquired - 8 8 260 8
impact of changes in scope of consolidation (122) (2) (124) 466 73
The impact of changes in scope of consolidation in 2006 amounts
to 124 million euros, after deducting costs paid on the sale of the
Electric Motors & Actuators business.
The impact of the changes in the scope of consolidation on Group
cash in 2005 (466 million euros) is mainly due to the following
two transactions:
acquisition of the Engine Electronics business of Johnson
Controls Inc. for a total cost of 321 million euros; and
•
acquisition of the remainder of the shares of ZVCC (Zexel Valeo
Climate Control) and VZCCC (Valeo Zexel China Climate Control)
for a total cost of 104 million euros.
In 2004, Group cash was notably impacted by the following
changes in the scope of consolidation:
buyout of the remaining minority interests in Valeo
Climatisation;
the increase in Valeo’s interest in Shanghai Valeo Automotive
Electrical Systems Co. Ltd. from 30% to 50%.
•
•
•
3 - Notes to the statement of income
3.1 - Net sales
Group net sales amounted to 9,970 million euros in 2006
versus 9,736 million euros in 2005, an increase of 2.4% on the
comparable prior-year period.
Changes in Group structure and changes in exchange rates had
positive impacts of 1.5% and 0.5%, respectively. Consolidated net
sales remained stable between 2005 and 2006 on a comparable
Group structure and exchange rate basis.
As indicated in note 2.1, these amounts do not include net sales of
the Electric Motors & Actuators business, which is included under
the “Non-strategic activities” income statement caption for the
three financial years presented.
Net sales of the Electric Motors & Actuators business amounted
respectively to 224, 253 and 267 million euros for the 2006, 2005
and 2004 financial years.
2006 Reference document - VALEO86
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
The increase in net sales in 2005 compared to 2004 is principally
due to the following two transactions:
the acquisition of the Engine Electronics business of Johnson
Controls Inc. on March 1, 2005, which had a favorable impact
of 365 million euros on net sales; and
•
the increase of Valeo’s interest in a Japanese company, Valeo
Thermal Systems Japan Corp., from 50% to 100% on April 1,
2005. This additional investment contributed 255 million euros
to Group net sales.
•
3.2 - Personnel expenses
2006 2005 2004
total employees (excluding non-strategic activities) (1) 69,700 68,600 64,500
(1) Including temporary staff.
The increase in the number of employees between 2004 and 2005 is due to the two main acquisitions carried out in 2005, as described
in note 3.1.
the statement of income presents operating expenses by function. operating expenses include the following personnel-
related expenses:
(In millions of euros) 2006 2005 2004
Wages and salaries (1) 1,794 1,739 1,634
Social charges 421 392 391
Share-based payments 11 7 5
Pension expenses in respect of defined contribution schemes 115 126 136
(1) Including temporary staff
Pension costs under defined benefit plans are set out in note 4.10.2.
3.3 - Research and development expenditure
In 2006, research and development expenditure amounted to
661 million euros after deduction of 15 million euros corresponding
to research tax credits granted in connection with these research
and development costs.
In the previously published 2005 and 2004 statements of income,
research and development tax credits were recognized under
“income taxes”. Research and development expenditure relating
to these years has been restated in a manner comparable to
2006. Such expenditure amounted to 640 and 580 million euros
for 2005 and 2004, respectively, after deduction of research tax
credits of 6 and 5 million euros.
This reclassification of research tax credits did not modify either
stockholders’ equity or net income for 2005 and 2004.
3.4 - other income and expenses
(In millions of euros) 2006 2005 2004
Claims and litigation (13) (16) (9)
Restructuring and asset impairment (61) (34) (74)
Goodwill impairment - - (15)
other 4 - -
Other income and expenses (70) (50) (98)
2006 Reference document - VALEO 87
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
3.4.1 - Claims and litigation
In 2006, this account mainly includes costs relating to commercial
and labor disputes in progress.
The Group recognized income of 23 million euros in 2005 following
the favorable completion of an industrial property dispute. The
balance on this account notably includes costs related to the
resolution in the year of customer claims.
3.4.2 - Restructuring and asset impairment losses
Asset impairment lossesAsset impairment losses of 15 million euros were recognized in
other income and expenses in 2006, compared with 27 million
euros in 2005.
These impairment losses mainly result from impairment tests
carried out in accordance with the following methodology:
The recoverable amounts of groups of CGUs is calculated using five-
year cash flow projections prepared on the basis of the budgets
and medium-term plans of the Group’s divisions. The forecasts are
based on past experience, macroeconomic data in respect of the
automobile market, order backlogs and products under development.
After five years, cash flows are extrapolated using a growth rate of
1%. This growth rate does not exceed the average long-term growth
rate of the Group’s business sector. A post-tax discount rate of 7.5%
is applied to the cash flows in 2006 (7% in 2005, 8% in 2004), on
the basis of the Group’s weighted average cost of capital. The use
of after tax rates leads to the calculation of recoverable amounts
▪
identical to those that would be obtained from applying pre-tax rates
to non-taxed cash flows.
These tests led the Group to recognize an exceptional impairment
loss of 14 million euros in 2006 and 11 million euros in 2005 on
a CGU in the lighting systems product group.
RestructuringRestructuring expenses of 46 million euros were recognized in
2006, comprising costs relating to the rationalization and closure
of industrial sites, mainly in Western Europe.
3.4.3 - goodwill impairment
Goodwill is allocated to cash generating units (CGUs) on the
basis of the product groups to which the goodwill is related.
Such goodwill is subject to impairment tests at least once a
year, following the same method as that used for the CGUs (see
note 3.4.2).
These tests did not give rise to recognition of any goodwill
impairment in 2006 and 2005; however they led to recognition of
an impairment loss of 15 million euros at December 31, 2004.
3.4.4 - Other
In 2006, this caption notably includes the capital gain on the
disposal of Zexel Logitec Company for an amount of 14 million
euros.
The balance on this account notably includes costs relating to
strategic transactions.
▪
3.5 - Cost of net debt
(In millions of euros) 2006 2005 2004
Interest expense (1) (78) (72) (49)
Interest income 21 20 17
Cost of net debt (57) (52) (32)
(1) The application of IAS 39 on financial instruments at January 1, 2005 led to a year-on-year increase in interest expense of 7 million euros compared to 2004, mainly
on OCEANE bonds.
3.6 - other financial income and expenses
(In millions of euros) 2006 2005 2004
Interest expense on unwinding of discount on pension obligations (1) (49) (56) (52)
expected returns on pension plan assets (1) 19 17 14
Currency gains and losses - net 1 (8) (1)
Charges to provisions for credit risk (4) (6) -
Gain (loss) on disposal of financial assets 27 - -
miscellaneous (3) 1 2
Other financial income and expenses (9) (52) (37)
(1) See note 4.10.2.
2006 Reference document - VALEO88
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
“Charges to provisions for credit risk” notably include an
impairment provision of 2 million euros relating to a second tier
customer, as well as the costs of credit insurance.
The “Gain (loss) on disposal of financial assets” caption mainly
includes the income related to the sale of Parrot, for an amount
of 24 million euros (see note 2.2).
3.7 - Income taxes
3.7.1 - income tax expense
(In millions of euros) 2006 2005 2004
Current taxes (84) (71) 6
deferred taxes 9 5 (24)
income tax expense (75) (66) (18)
3.7.2 - Effective tax rate
The Group’s average weighted tax rate for 2006 was 37% as
against 30% in 2005 and 7% in 2004. The net tax charge for
2004 included an 83 million euro tax rebate received from the
French tax authorities in respect of tax paid in 2001 on the gain
from the disposal of the Group’s 50% interest in LuK (an initial
rebate of 88 million euros was received in 2003).
(% of income before tax) 2006 2005 2004
Standard tax rate in France (34.4) (34.9) (35.4)
Impact of: income taxed at other rates• 8.5 6.8 1.7
unused tax losses (current year) and unrecognized deferred tax assets• (27.6) (24.4) (16.1)
use of prior-year tax losses• 5.7 5.4 3.8
permanent differences between book income and taxable income• 7.4 6.3 3.0
tax credits• 3.8 10.8 35.9
Effective group tax rate (36.6) (30.0) (7.1)
3.8 - earnings per share
3.8.1 - Basic earnings per share
2006 2005 2004
Net income attributable to equity holders of the company (In millions of euros) 161 142 240
Average number of shares outstanding (In thousands) 76,795 79,320 82,202
Basic earnings per share (In euros) 2.10 1.80 2.92
2006 Reference document - VALEO 89
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
3.8.2 - Diluted earnings per share
2006 2005 2004
Net income attributable to equity holders of the company (In millions of euros) 161 142 240
Interest expense on convertible bonds (1) - - 11
Average number of shares outstanding (In thousands) 76,795 79,320 82,202
Stock options (In thousands) 199 330 200
oCeANe convertible bonds (1) - - 10,105
Average number of shares used for the calculation of diluted earnings per share (In thousands) 76,994 79,650 92,507
Diluted earnings per share (In euros) 2.09 1.79 2.71
(1) Not taken into account in 2005 and 2006, in view of the potentially anti-dilutive impact of this adjustment (see note 1.8).
4 - Notes to the balance sheet
4.1 - Goodwill
(In millions of euros) 2006 2005 2004
Net goodwill, January 1 1,484 1,158 1,185
Acquisitions during the year 8 260 5
Purchase price payments in respect of acquisitions made in previous years - - 3
disposals (26) - -
translation adjustments (51) 66 (20)
Impairment (1) - - (15)
Net goodwill, December 31 1,415 1,484 1,158
Accumulated impairment losses at december 31 (32) (33) (33)
(1) See note 3.4.3..
In 2006, the change in goodwill excluding the effect of foreign
currency movements is mainly due to the sale of the Electric
Motors & Actuators business (see note 2.1).
In 2005, Valeo notably carried out the following transactions:
acquisition of the Engine Electronics business of Johnson
Controls Inc.;
purchase of the entire share capital of Japanese company Valeo
Thermal Systems Japan Corp.;
•
•
increase of its interest in two Thai companies, Valeo Siam
Thermal Systems Co. Ltd. and Valeo Thermal Systems Sales
Thailand Co. Ltd.
Following identification and measurement of the assets acquired
and liabilities assumed, goodwill relating to these 2006 acquisitions
amounted to 260 million euros at December 31, 2005.
•
2006 Reference document - VALEO90
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
the main goodwill balances are broken down by group of CGUs as follows:
At december 31
(In millions of euros) 2006 2005 2004
Wiper Systems 221 236 216
electronics and Connective Systems 213 217 214
Climate Control 209 223 175
Switches and detection Systems 170 175 167
engine management Systems 181 181 -
other 421 452 386
TOTAL 1,415 1,484 1,158
4.2 - other intangible assets
At december 31
2006 2005 2004
gross value Amortization and impairment
losses
Net value Net value Net value
(In millions of euros)
Software 132 (97) 35 32 29
Patents and licenses 85 (54) 31 56 11
Capitalized development expenditure 550 (258) 292 279 222
other 187 (17) 170 155 19
Intangible assets 954 (426) 528 522 281
Other intangible assets include customer relationship intangibles, mainly purchased in the context of 2005 acquisitions. In addition, patents
and licenses include assets relating to technology intangibles acquired.
Changes in other intangible assets over 2004, 2005 and 2006 are analyzed below:
2004
Software patents and licenses
Capitalized development expenditure
Other intangible
assets
Total
(In millions of euros)
gross at January 1, 2004 75 39 233 28 375
Accumulated amortization and impairment (52) (25) (50) (14) (141)
Net at January 1, 2004 23 14 183 14 234
Acquisitions 9 3 97 13 122
disposals 2 (1) (3) (1) (3)
Changes in scope of consolidation - - - 1 1
Impairment losses - - (6) - (6)
Amortization (14) (6) (47) (2) (69)
translation adjustments - - (1) - (1)
Reclassifications 9 1 (1) (6) 3
Net at December 31, 2004 29 11 222 19 281
2006 Reference document - VALEO 91
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
2005
Software patents and licenses
Capitalized development expenditure
Other intangible
assets
Total
(In millions of euros)
gross at January 1, 2005 94 41 325 27 487
Accumulated amortization and impairment (65) (30) (103) (8) (206)
Net at January 1, 2005 29 11 222 19 281
Acquisitions 12 2 118 13 145
disposals 2 (1) - (3) (2)
Changes in scope of consolidation 1 53 3 141 198
Impairment losses - - (7) (1) (8)
Amortization (19) (10) (65) (7) (101)
translation adjustments 1 (1) 8 (1) 7
Reclassifications 6 2 - (6) 2
Net at December 31, 2005 32 56 279 155 522
2006
Software patents and licenses
Capitalized development expenditure
Other intangible
assets
Total
(In millions of euros)
gross at January 1, 2006 119 96 458 171 844
Accumulated amortization and impairment (87) (40) (179) (16) (322)
Net at January 1, 2006 32 56 279 155 522
Acquisitions 13 4 128 19 164
disposals - - (2) - (2)
Changes in scope of consolidation (2) (2) (8) (1) (13)
Impairment losses - - (10) - (10)
Amortization (19) (9) (85) (8) (121)
translation adjustments (1) (1) (4) (1) (7)
Reclassifications 12 (17) (6) 6 (5)
Net at December 31, 2006 35 31 292 170 528
4.3 - Property, plant and equipment
At december 31
2006 2005 2004
(In millions of euros)
gross carrying amount
Depreciation and
impairment losses
Net carrying amount
of which finance leases
Net carrying amount
of which finance leases
Net carrying amount
of which finance leases
land 156 (10) 146 - 167 - 145 1
Buildings 971 (552) 419 6 458 15 456 12
Plant and equipment 3,322 (2,452) 870 4 933 5 880 4
Specific tooling 1,169 (1,023) 146 3 155 9 152 7
other 468 (370) 98 5 123 6 120 8
Non-current assets in progress 239 - 239 - 205 - 192 -
property, plant and equipment 6,325 (4,407) 1,918 18 2,041 35 1,945 32
Property, plant and equipment pledged as security amounted to 24 million euros at December 31, 2006.
2006 Reference document - VALEO92
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
Changes in property, plant and equipment over 2004, 2005 and 2006 are analyzed below:
2004
(In millions of euros)
Land Buildings plant and equipment
Specific tooling
Other Fixed assets in progress
Total
gross at January 1, 2004 156 895 2,927 1,000 475 197 5,650
Accumulated depreciation and impairment (8) (449) (1,972) (812) (353) - (3,594)
Net at January 1, 2004 148 446 955 188 122 197 2,056
Capital expenditure 2 37 110 42 40 200 431
disposals - (6) (2) (4) (2) (11) (25)
Changes in scope of consolidation - 2 3 - - - 5
Impairment losses (1) - (8) (3) - - (12)
depreciation - (48) (274) (112) (57) - (491)
translation adjustments (2) 1 (3) - - 1 (3)
Reclassifications (2) 24 99 41 17 (195) (16)
Net at December 31, 2004 145 456 880 152 120 192 1,945
2005
(In millions of euros)
Land Buildings plant and equipment
Specific tooling
Other Fixed assets in progress
Total
gross at January 1, 2005 155 934 2,977 1,021 489 192 5,768
Accumulated depreciation and impairment (10) (478) (2,097) (869) (369) - (3,823)
Net at January 1, 2005 145 456 880 152 120 192 1,945
Capital expenditure 1 19 154 65 43 165 447
disposals (10) (13) (8) (2) - (12) (45)
Available-for-sale assets (1) (2) (9) - - - - (11)
Changes in scope of consolidation 30 20 71 4 7 18 150
Impairment losses (1) (2) (12) (2) (9) - (26)
depreciation - (50) (286) (113) (55) - (504)
translation adjustments 6 20 40 9 6 7 88
Reclassifications (2) 17 94 42 11 (165) (3)
Net at December 31, 2005 167 458 933 155 123 205 2,041
(1) In the context of application of IFRS 5, buildings for which the Group is actively seeking buyers are classified in Assets held for sale.
2006 Reference document - VALEO 93
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
2006
(In millions of euros)
Land Buildings plant and equipment
Specific tooling
Other Fixed assets in progress
Total
gross at January 1, 2006 178 1,012 3,346 1,155 538 205 6,434
Accumulated depreciation and impairment (11) (554) (2,413) (1,000) (415) - (4,393)
Net at January 1, 2006 167 458 933 155 123 205 2,041
Capital expenditure 2 24 179 63 33 191 492
disposals - (1) (1) (2) (3) (8) (15)
Available-for-sale assets (1) - (9) - - - - (9)
Changes in scope of consolidation (8) (17) (20) (4) (3) (4) (56)
Impairment losses (1) - (5) (1) (1) - (8)
depreciation (1) (50) (284) (103) (46) - (484)
translation adjustments (8) (6) (13) (3) (3) (6) (39)
Reclassifications (5) 20 81 41 (2) (139) (4)
Net at December 31, 2006 146 419 870 146 98 239 1,918
(1) In the context of application of IFRS 5, buildings for which the Group is actively seeking buyers are classified in Assets held for sale.
4.4 - Investments in associates
Changes in the “Investments in associates” caption can be analyzed as follows:
(In millions of euros) 2006 2005 2004
investments in associates at January 1 116 96 99
Share of profit in associates - 6 5
dividend payments (4) (4) (3)
Impacts of changes in the scope of consolidation 3 8 (1)
translation adjustments (13) 7 (4)
other 1 3 -
investments in associates at December 31 103 116 96
At december 31
Ownership interest(%)
Equity in net assets (In millions of euros)
2006 2005 2004 2006 2005 2004
Ichikoh 29.4 28.2 22.7 72 80 64
Faw Valeo Climate Control 36.5 36.5 36.5 23 25 21
other - - - 8 11 11
investments in associates - - - 103 116 96
Ichikoh is a company listed on the Tokyo Stock Exchange. At December 31, 2006, the market capitalization of the shares held by the Valeo
Group was 58 million euros. The carrying amount of the investment is supported by its value in use.
2006 Reference document - VALEO94
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
Summarized financial data in respect of associates are set out below:
(In millions of euros) 2006 2005 2,004
total assets 703 754 776
total liabilities 483 509 490
total operating revenues 950 1,011 1,228
Net income for the period (3) 20 20
4.5 - Non-current financial assets
Non-current financial assets are broken down as follows:
At december 31
(In millions of euros) 2006 2005 2004
Non-consolidated investments 2 9 8
long-term loans 16 12 2
Security deposits 3 3 2
other 3 4 2
Non-current financial assets 24 28 14
4.6 - deferred taxes
Deferred tax assets and liabilities are offset when a legal right of
offset of current tax assets and liabilities exists and the deferred
tax assets and liabilities concern income taxes levied by the
same tax authority. In France, Valeo elected for tax consolidation
for the years 2003 to 2007. The tax group includes the parent
company and its principal French subsidiaries that are eligible for
tax consolidation.
Valeo also elected for tax consolidation for its subsidiaries in other
countries whose legislation permits it (Germany, Spain, Italy, the
United Kingdom and the United States).
At december 31
(In millions of euros)
2004 2005 Recognized through income
Othermovements (1)
2006
loss carry forwards (2) 17 12 9 12 33
Capitalized development expenditure (69) (82) (14) 4 (92)
Pensions and other employee benefits 53 63 4 - 67
other provisions 42 62 (10) 13 65
Inventories 13 15 - - 15
Provisions for reorganization expenses 14 11 7 2 20
tooling 9 8 (1) - 7
Non-current assets (5) (4) 9 (6) (1)
other (4) 6 5 (30) (19)
Total deferred taxes 70 91 9 (5) 95
of which:deferred tax assets• 83 100 96
deferred tax liabilities• (13) (9) (1)
(1) Other movements comprise (1) million euros of deferred taxes relating to actuarial gains and losses recognized through stockholders’ equity, (2) million euros related
to the impact of changes in the scope of consolidation and (2) million euros related to translation adjustments. In addition, reclassifications have been made between
the different types of deferred taxes.(2) Deferred tax assets are recognized in respect of tax loss carry forwards to the extent that it is probable that future profits will be available against which they may be offset.
2006 Reference document - VALEO 95
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
At december 31, 2006, deferred tax assets not recognized by the Group are broken down as follows:
(In millions of euros) Base potential tax saving
tax loss carry forwards - expiration date 2007 to 2010 137 47
tax loss carry forwards - expiration date 2010 and beyond 632 212
tax loss carry forwards - available indefinitely 839 287
Current tax loss carry forwards 1,608 546
Unrecognized deferred tax assets on temporary differences - 232
Total unrecognized deferred tax assets 1,608 778
4.7 - Inventories
At december 31, 2006, inventories are broken down as follows:
(In millions of euros)
2006 2005 2004
gross provisions Net Net Net
Raw materials 275 (44) 231 221 189
Work-in-progress 80 (6) 74 81 71
Finished goods, supplies and specific tooling 401 (59) 342 352 305
inventories - net 756 (109) 647 654 565
Provisions for impairment in the value of inventories amounted
to 109 million euros at December 31, 2006 (130 millions euros at
December 31, 2005), including an allowance of 26 million euros
in the year.
In 2005, allowances to provisions for impairment amounted to
35 million euros.
The cost of inventories recognized in cost of sales (excluding the
Electric Motors & Actuators business) was 8,166 million euros in
2006 as against 7,923 million euros in 2005 and 7,230 million
euros in 2004.
4.8 - Accounts and notes receivable
At december 31
(In millions of euros) 2006 2005 2004
Accounts and notes receivable 1,864 1,938 1,748
less provisions (30) (32) (22)
Accounts and notes receivable - net 1,834 1,906 1,726
Allowances to provisions against accounts and notes receivable are recognized in “Other financial income and expenses” where such a
provision results from a risk of client default (see note 3.6) and in administrative expenses in other cases.
4.9 - Stockholders’ equity
4.9.1 - Share capital
At December 31, 2006, Valeo’s share capital totaled 233 million
euros, represented by 77,580,617 shares of common stock with a
par value of 3 euros each, all fully paid-up. Shares that have been
registered in the name of the same holder for at least four years
carry double voting rights (2,215,541 at December 31, 2006).
Valeo’s potential share capital would amount to 274 million euros,
representing 91,430,106 shares, in the event of:
the exercise of stock subscription options granted to Valeo
Group employees;
the conversion of bonds issued as part of the OCEANE program
into new shares (see note 4.11.2).
•
•
2006 Reference document - VALEO96
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
Terms and conditions of stock subscription plans
year in which the plan was set up Number of shares subject to options
Exercise priceof options (1)
(In euros)
Number of optionsoutstanding at
December 31, 2006 (2)
Expiry date
2000 1,300,000 48.00 419,673 2008
2001 80,000 55.82 80,800 2009
2001 600,000 42.48 303,000 2009
2001 442,875 42.69 301,808 2009
2002 420,000 43.84 241,188 2010
2002 600,000 28.30 353,248 2010
2003 700,000 23.51 506,817 2011
2003 780,000 32.91 580,273 2011
2004 1,123,200 28.46 957,243 2012
TOTAL 6,046,075 3,744,050(1) Exercise price equal to 100% of the average Valeo share price over the 20 trading days preceding the meeting of the Board of Directors or Management Board granting
the stock subscription options.(2) The number of shares includes the impact of the public share buyback offer and simplified public tender offer, which increased the share allocation ratio to 1.01 Valeo
share from 1 Valeo share.
Terms and conditions of stock option plans
year in which the plan was set up Number of shares subject to options
Exercise priceof options (1)
(In euros)
Number of optionsoutstanding at
December 31, 2006 (2)
Expiry date
2003 500,000 32.91 371,457 2011
2004 280,800 32.74 240,370 2012
2005 650,000 32.32 596,380 2013
2006 187,000 33.75 187,000 2014
2006 1,309,250 32.63 1,309,250 2014
TOTAL 2,927,050 2,704,457(1) Exercise price equal to 100% of the average Valeo share price over the 20 trading days preceding the meeting of the Board of Directors or Management Board or 100%
of the average purchase price of treasury stock held if this is greater than the Valeo quoted share price.(2) The number of shares includes the impact of the public share buyback offer and simplified public tender offer, applicable to grants prior to 2005, which increased the
share allocation ratio to 1.01 Valeo share from 1 Valeo share.
▪
▪
the following employee stock option plans and free share plans approved by the Annual General meeting were in progress at
december 31, 2006:
Terms and conditions of free share awards
year in which plan was set up Number of free shares granted
Number of shares not yet issued at
December 31, 2006
year of vesting
2005 600,000 (1) 541,870 2008
2006 63,000 (2) 63,000 2008
2006 100,000 100,000 2009
TOTAL 763,000 704,870(1) Including 300,000 shares granted subject to the Group achieving certain profitability criteria.(2) Including 36,500 shares granted subject to the Group achieving certain profitability criteria
▪
2006 Reference document - VALEO 97
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
movements on the stock option plans can be analyzed as follows:
2004 2004
Number of options and free shares
weighted average exercise price
Options not exercised at January 1, 2004 5,524,925 40.92
options granted/free shares to be issued 1,404,000 29.32
options cancelled (393,700) 39.91
options expired (58,250) 67.40
options exercised - -
Options not exercised/free shares not issued on December 31 6,476,975 38.23
Options which can be exercised on December 31, 2004 3,288,725 46.75
2005 2005
Number of options and free shares
weighted average exercise price
Options not exercised at January 1, 2005 6,476,975 38.23
options granted/free shares to be issued 1,250,000 16.81
options cancelled (748,200) 37.67
options expired (485,250) 70.32
options exercised (51,120) 25.69
Options not exercised/free shares not issued on December 31 6,442,405 31.82
Options which can be exercised on December 31, 2005 3,099,668 39.50
2006 2006
Number of options and free shares
weighted average exercise price
Options not exercised at January 1, 2006 6,442,405 31.82
options granted/free shares to be issued 1,659,250 29.55
options cancelled (490,575) 29.49
options expired (432,125) 50.01
options exercised (69,555) 25.88
Options not exercised/free shares not issued on December 31 7,109,400 30.50
Options which can be exercised on December 31, 2006 3,759,575 35.21
Taking account of the impact of the public share buyback offer
and the simplified public tender offer, the 7,109,400 stock options
and free shares in circulation at December 31, 2006 carry rights
to 7,153,377 Valeo shares. The 69,555 options exercised in 2006
carried rights to 70,260 Valeo shares.
the principal data and assumptions underlying the valuation of equity instruments at fair value can be analyzed as
follows:
2006
March Novembertype Free shares and
purchase optionFree shares and purchase option
Share price at date of grant (Euros) 31.79 30.16
expected volatility (%) - and 24.6 - and 29.0
Risk-free rate (%) 3.3 and 3.5 3.9
dividend rate (%) 3.2 3.2
duration of the option (Years) 2.25 and 4 3 and 4
Fair value of the equity instrument (Euros) 29.28 and 4.92 26.32 and 5.54
2006 Reference document - VALEO98
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
4.9.7 - Minority interests
Changes in minority interests can be analyzed as follows:
(In millions of euros) 2006 2005 2004
Minority interests at January 1 43 57 97
equity in net earnings 5 6 8
dividends paid (4) (5) (7)
translation adjustment (3) 4 (3)
Changes in the scope of consolidation (3) (19) (38)
Minority interests at December 31 38 43 57
2005 2004 2003
type Free shares and purchase option
Subscription option and purchase option
Subscription option
Share price at date of grant (Euros) 31.46 29.77 32.63 and 20.21
expected volatility (%) - and 26.4 25.8 31.7 and 36.6
Risk-free rate (%) 2.9 and 3.1 3.1 3.7 and 3.2
dividend rate (%) 3.1 3.4 3.4
duration of the option (Years) 2.25 and 4 4 4
Expected volatility is determined as being the implicit volatility
at the date of grant of the plan. The maturity of four years used
for stock option plans corresponds to the period for which the
availability of options is restricted by tax legislation, which is
estimated to correspond to the duration of the option.
Given an employee turnover assumption of 5%, an expense of
11 million euros was recognized in respect of 2006, as against
an expense of 7 million euros for 2005.
An expense of 2 million euros was recognized in 2004 reflecting
recognition of a liability in respect of SARs (Share Appreciation
Rights) granted in the context of an employee share plan. A
derivative used to hedge the corresponding commitment was
recognized on January 1, 2005 in an amount of 2 million euros
on first time application of IAS 39.
At December 31, 2006, the liability and the derivative are both
recognized in the Group’s financial statements in an amount of
1 million euros. As rights related to the SARs (“Share Appreciation
Rights”) were not vested at the year-end their intrinsic value is nil.
4.9.2 - Additional paid-in capital
Additional paid-in capital represents the net amount received,
either in cash or in assets, in excess of the par value on issuance
of Valeo shares.
4.9.3 - Translation adjustment
The translation adjustment reserve at December 31, 2006
primarily includes gains and losses arising from the translation of
the net assets of Valeo’s Tunisian, Turkish, Mexican, US, Brazilian,
Japanese, South Korean and Chinese subsidiaries.
4.9.4 - Retained earnings
Consolidated retained earnings include net income for the year
amounting to 161 million euros (before appropriation of the
dividend to be proposed at the Annual General Meeting).
The balance of the parent company’s distributable retained
earnings amounts to 1,589 million euros, before appropriation
of 2006 net income (respectively 1,593 and 1,596 million euros
in 2005 and 2004).
4.9.5 - Dividends per share
Dividends paid in 2006 amounted to 84,391 thousand euros,
being 1.10 euro per share, as against 91,276 euros (1.10 euro per
share) in 2005 and 85,307 thousand euros (1.05 euro per share)
in 2004. A dividend of 1.10 euro per share for the year ended
December 31, 2006 will be proposed to the Annual General
Meeting. This distribution is not recognized in accrued liabilities
in the financial statements at December 31, 2006.
4.9.6 - Treasury stock
At December 31, 2006, Valeo owns 686,704 of its own shares,
representing 0.89% of share capital, as against 807,704 shares
(1.04%) at December 31, 2005 and 1,037,804 shares (1.24%)
at December 31, 2004.
2006 Reference document - VALEO 99
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
4.10 - Provisions
Changes in provisions can be analyzed as follows:
(In millions of euros)
provisions for reorganization
expenses
provisions for pensions and other employee benefits
Other provisions
Total
provisions at January 1, 2004 224 870 265 1,359
Amounts used during the year (102) (112) (57) (271)
Impacts of changes in the scope of consolidation - 1 2 3
translation adjustments (3) (30) (1) (34)
Reclassification (6) 6 (1) (1)
Additions 57 39 100 196
Unwinding of discount - 40 - 40
Reversals (5) - (31) (36)
Actuarial gains and losses recognized through equity - 42 - 42
provisions at December 31, 2004 165 856 277 1,298
Amounts used during the year (103) (89) (91) (283)
Impacts of changes in the scope of consolidation 10 15 192 217
translation adjustments 10 62 13 85
Reclassification (6) 13 (6) 1
Additions 108 89 154 351
Unwinding of discount 1 39 - 40
Reversals (2) (4) (152) (49) (205)
Actuarial gains and losses recognized through equity - 50 - 50
provisions at December 31, 2005 181 883 490 1,554
Amounts used during the year (82) (62) (107) (251)
Impacts of changes in the scope of consolidation (3) (27) (3) (33)
translation adjustment (10) (33) (6) (49)
Reclassification (1) 42 (41) 3 4
Additions 55 28 105 188
Unwinding of discount 4 30 - 34
Reversals (11) (3) (51) (65)
Actuarial gains and losses recognized through equity - (27) - (27)
provisions at December 31, 2006 176 748 431 1,355
of which current portion (< 1 year) 89 73 256 418
(1) Releases of provisions for pension and other employee benefits include an amount of (127) million euros relating to amendments to the healthcare insurance plan in
the United States and an amount of (20) million euros in connection with the reduction in benefit entitlement due to the closure of the Rochester site. (2) Including, in 2006, a reclassification of 41 million euros from provisions for pensions to provisions for reorganization expenses in connection with healthcare plans for
early retirees in the United States.
4.10.1 - provisions for reorganization expenses
Provisions for reorganization expenses correspond to a series
of measures adopted by the Group as part of an industrial
streamlining plan aimed at more closely tailoring Valeo’s industrial
base to customer requirements, in terms of cost competitiveness
and geographical location.
The provisions include costs relating primarily to:
continued rightsizing and production streamlining measures;
and specific severance payments (CATS) applicable at certain
French sites, in accordance with the industry agreement signed
in March 2001.
•
•
2006 Reference document - VALEO100
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
4.10.2 - provisions for pensions and other employee benefits
Description of the plans in force within the groupThe Group’s commitments in relation to pensions and other
employee benefits primarily concern the following defined
benefit plans:
termination benefits (France, Italy, Mexico, South Korea);
supplementary pension benefits (United States, Germany,
United Kingdom, Japan and France) which top up the statutory
pension schemes in force in those countries. These plans are
generally externally funded, with the exception being in
Germany;
the payment of certain medical and life insurance costs for
retired employees (United States),
▪
•
•
•
certain of the above-mentioned benefits granted specifically
under early retirement schemes (United States, Germany and
France),
other long-term benefits (long-service bonuses in France and
Germany).
The costs relating to all of these benefits are accounted for in
accordance with the accounting policy described in note 1.17.
Actuarial assumptionsThe actuarial assumptions used by the Group to calculate its
obligations relating to pensions and other employee benefits take
into account the specific demographic and financial conditions
of each country in which the Group operates and each Group
company.
Discount rates are determined by reference to market yields at
the valuation date on high quality corporate bonds with a term
consistent with that of the employee benefits concerned.
•
•
▪
In 2006, the average discount rates used in the countries representing the Group’s most significant obligations were as
follows:
At december 31
2006 2005 2004
(%) (%) (%)
France 4.5 4.3 4.5
Germany 4.4 4.1 4.8
United Kingdom 5.0 4.8 5.3
Italy 4.3 4.0 4.0
United States 5.9 5.6 5.7
mexico 9.3 8.5 10.2
Japan 2.1 1.8 2.0
South Korea 5.3 5.8 4.5
The discount rates for early retirement plan obligations are lower than the rates set out above, as the obligations have shorter terms than
for pensions.
the expected long-term return on plan assets has been calculated taking into account the structure of the investment
portfolio in each country. the rates are as follows for the principal funds invested by the Group:
At december 31
2006 2005 2004
(%) (%) (%)
United States 8.5 8.5 8.5
United Kingdom 6.4 6.7 7.0
Japan 2.7 2.0 2.0
South Korea 4.5 4.5 5.0
The weighted average rate of long-term salary increases was 3.5%
at December 31, 2006, unchanged compared to December 31,
2005. It was 3.6% at December 31, 2004.
The rate of increase for medical costs in the United States used
to value the Group’s obligations was 10% at December 31, 2006,
2005 and 2004, reducing by one percentage point a year from
2010 to reach 5% in 2014.
2006 Reference document - VALEO 101
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
Breakdown of obligations
At december 31, 2004
(In millions of euros)
France Other European countries
North America
Other countries
Total
Present value of unfunded obligations 168 248 303 37 756
Present value of funded obligations 19 58 230 30 337
market value of plan assets (1) (37) (148) (25) (211)
Deficit 186 269 385 42 882
Unrecognized past service cost (34) - 8 - (26)
provisions recognized at December 31, 2004 152 269 393 42 856
At december 31, 2005
(In millions of euros)
France Other European countries
North America
Other countries
Total
Present value of unfunded obligations 179 286 201 44 710
Present value of funded obligations 24 73 325 56 478
market value of plan assets (3) (42) (197) (52) (294)
Deficit 200 317 329 48 894
Unrecognized past service cost (31) - 20 - (11)
provisions recognized at December 31, 2005 169 317 349 48 883
At december 31, 2006
(In millions of euros)
France Other European countries
North America
Other countries
Total
Present value of unfunded obligations 181 266 142 47 636
Present value of funded obligations 27 77 287 47 438
market value of plan assets (5) (45) (205) (46) (301)
Deficit 203 298 224 48 773
Unrecognized past service cost (26) - 1 - (25)
provisions recognized at December 31, 2006 177 298 225 48 748
▪
2006 Reference document - VALEO102
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
Movements in provisions
(In millions of euros)
France Other European countries
North America
Other countries
Total
provisions at January 1, 2004 148 254 436 32 870
Actuarial gains and losses recognized through equity 5 14 18 5 42
Amounts used during the year (1) (21) (18) (68) (5) (112)
Impacts of changes in the scope of consolidation - - - 1 1
Reclassification pensions/reorganization expenses (3) (1) 10 - 6
translation adjustments - (1) (30) 1 (30)
Provisions for the year (expense):
service cost• 10 9 12 7 38
interest expense• 8 13 31 2 54
past service cost• 7 - (6) - 1
expected return on plan assets• - (2) (11) (1) (14)
other items• (2) 1 1 - -
provisions at December 31, 2004 152 269 393 42 856
Actuarial gains and losses recognized through equity 7 40 15 (12) 50
Amounts used during the year (1) (19) (14) (49) (7) (89)
Impacts of changes in the scope of consolidation 5 1 2 7 15
Reclassification pensions/reorganization expenses - - 13 - 13
translation adjustments - 1 54 7 62
Provisions for the year (expense):
service cost• 10 10 10 9 39
interest expense• 8 14 31 3 56
past service cost• 6 - (127) (2) - (121)
expected return on plan assets• - (2) (14) (1) (17)
other items• - (2) 21 (3) - 19
provisions at December 31, 2005 169 317 349 48 883
Actuarial gains and losses recognized through equity 3 (4) (28) 2 (27)
Amounts used during the year (1) (22) (14) (18) (8) (62)
Impacts of changes in the scope of consolidation - (25) (1) (1) (27)
Reclassification pensions/reorganization expenses - 1 (42) - (41)
translation adjustments - 1 (32) (2) (33)
Provisions for the year (expense):
service cost• 17 10 7 8 42
interest expense• 8 14 25 2 49
past service cost• 5 - (19) - (14)
expected return on plan assets• - (2) (16) (1) (19)
other items• (3) - - - (3)
provisions at December 31, 2006 177 298 225 48 748
of which current portion (< 1 year) 20 17 31 5 73
(1) Including benefits paid directly to beneficiaries or contributions paid to external funds, depending on the plan concerned.(2) Corresponds to changes in retiree medical plans.(3) Of which (20) million euros in connection with the reduction in benefit entitlement and the 41 million euro effect of acceleration of rights in the context of the closure
of the Rochester site.
▪
2006 Reference document - VALEO 103
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
Movements in obligations
(In millions of euros)
France Other European countries
North America
Other countries
Total
Obligations at January 1, 2004 165 281 550 59 1,055
Service cost 10 9 11 8 38
Interest expense 8 13 31 2 54
Benefits paid (21) (18) (42) (7) (88)
Actuarial gains and losses 2 12 25 4 43
Plan amendments 26 3 - - 29
Impacts of changes in the scope of consolidation - - - 1 1
other (3) 6 - - 3
translation adjustments - - (42) - (42)
Obligations at December 31, 2004 187 306 533 67 1,093
Service cost 10 10 10 9 39
Interest expense 8 14 31 3 56
Benefits paid (18) (15) (42) (10) (85)
Actuarial gains and losses 9 43 16 (7) 61
Plan amendments 2 (1) (116) - (115)
Impacts of changes in the scope of consolidation 5 1 4 31 41
other - - 13 - 13
translation adjustments - 1 77 7 85
Obligations at December 31, 2005 203 359 526 100 1,188
Service cost 17 10 7 8 42
Interest expense 8 14 25 2 49
Benefits paid (21) (15) (10) (10) (56)
Actuarial gains and losses 3 (4) (28) 2 (27)
Plan amendments - - (19) - (19)
Impacts of changes in the scope of consolidation - (25) (1) (1) (27)
other (2) 2 (18) - (18)
translation adjustments - 2 (53) (7) (58)
Obligations at December 31, 2006 208 343 429 94 1,074
Movements in plan assets
(In millions of euros)
France Other European countries
North America
Other countries
Total
plan assets at January 1, 2004 2 33 116 28 179
expected return on plan assets - 2 11 1 14
Contributions paid to external funds 1 2 31 2 36
Benefits paid (1) - (5) (4) (10)
Actuarial gains and losses (1) - 7 (1) 5
Impacts of changes in the scope of consolidation - - - - -
other - - - - -
translation adjustments - - (12) (1) (13)
plan assets at December 31, 2004 1 37 148 25 211
▪
▪
2006 Reference document - VALEO104
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
(In millions of euros)
France Other European countries
North America
Other countries
Total
plan assets at January 1, 2005 1 37 148 25 211
expected return on plan assets - 2 14 1 17
Contributions paid to external funds 2 - 13 4 19
Benefits paid (1) (1) (6) (7) (15)
Actuarial gains and losses 1 3 - 5 9
Impacts of changes in the scope of consolidation - - 3 23 26
other - - - - -
translation adjustments - 1 25 1 27
plan assets at December 31, 2005 3 42 197 52 294
(In millions of euros)
France Other European countries
North America
Other countries
Total
plan assets at January 1, 2006 3 42 197 52 294
expected return on plan assets - 2 16 1 19
Contributions paid to external funds 2 1 9 3 15
Benefits paid - (1) (1) (5) (7)
Actuarial gains and losses - - 1 - 1
Impacts of changes in the scope of consolidation - - - - -
other - - 5 - 5
translation adjustments - 1 (22) (5) (26)
plan assets at December 31, 2006 5 45 205 46 301
Breakdown of plan assets
(In millions of euros)
France Other European countries
North America
Other countries
Total
Cash at bank - - 3 22 25
Shares 1 28 125 - 154
Government bonds - 5 13 - 18
Corporate bonds - 4 7 3 14
Breakdown of plan assets at December 31, 2004 1 37 148 25 211
Cash at bank - - 5 4 9
Shares 2 29 163 19 213
Government bonds - 7 22 25 54
Corporate bonds 1 6 7 4 18
Breakdown of plan assets at December 31, 2005 3 42 197 52 294
Cash at bank - 6 8 14
Shares 3 44 167 15 229
Government bonds - 1 22 23 46
Corporate bonds 2 - 10 - 12
Breakdown of plan assets at December 31, 2006 5 45 205 46 301
Contributions of 15 million euros were paid to external funds in 2006. Contributions in 2007 are estimated at 30 million euros.
The effective return on plan assets amounted to 31 million euros in 2006, as against 26 million euros in 2005 and 21 million euros in
2004.
▪
2006 Reference document - VALEO 105
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
the effects of a change of one point in the rate of increase in medical costs in the United States are as follows:
2006 2005 2004
(In millions of euros) increase Decrease increase Decrease increase Decrease
effect on service cost and interest expense - - 2 (2) 2 (2)
effect on obligations 2 (2) 3 (3) 29 (23)
4.10.3 - Other provisions
At december 31
(In millions of euros) 2006 2005 2004
Provisions for product warranties 180 226 108
other (1) 251 264 169
Other provisions 431 490 277
(1) Other provisions mainly concern contractual, labor, environmental or tax risks and litigation.
At December 31, 2005, movements of 125 million euros in this account caption arise as a result of changes in the scope of consolidation
in that year.
4.11 - debt
4.11.1 - gross debt
At december 31, 2006, the Group’s gross debt can be analyzed as follows:
(In millions of euros) 2006 2005 2004
long-term debt (note 4.11.2) 1,274 1,303 1,027
Current maturities of long-term debt (note 4.11.2) 54 581 188
Short-term debt (note 4.11.3) 274 157 175
gross debt 1,602 2,041 1,390
4.11.2 - Long-term debt
Analysis of long-term debt▪
At december 31
(In millions of euros) 2006 2005 2004
Bond issues 595 1,094 500
oCeANe (1) 427 419 463
Syndicated loans 216 221 127
lease obligations 15 25 28
other borrowings 49 86 72
Accrued interest 26 39 25
Long-term debt 1,328 1,884 1,215
(1) The carrying amount of the OCEANE was reduced from 463 million euros to 419 million euros following application of IAS 32 at January 1, 2005.
2006 Reference document - VALEO106
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
Long-term debt includes:
600 million euros worth of eight-year fixed rate bonds issued
by Valeo on June 24, 2005. The interest rate on these bonds is
3.75% of the nominal amount. These bonds were issued in the
context of the Euro Medium Term Note program. The effective
interest rate on these bonds is 3.89%;
463 million euros worth of bonds convertible for new shares
or exchangeable for existing shares (OCEANE) issued on
August 4, 2003, representing 9,975,754 bonds with a nominal
value of 46.4 euros each. The interest on these bonds is
2.375% per annum payable in arrears on January 1 of each
year. Bearers of the bonds can at any time request conversion
and/or exchange into common stock on the basis of 1.013
Valeo shares for one bond.
In addition, Valeo has a call option that may be exercised
between January 31, 2007 and December 31, 2010 if the
•
•
Valeo share is valued at an average price of 60 euros. The
effective interest rate of the OCEANE amounts to 4.54% (4.46%
excluding the call);
two seven-year syndicated loans for a total amount of
225 million euros issued on July 29, 2005, hedged by two
interest rate swaps which are perfectly matched in both
amount and duration. These loans and the related hedges
have the following characteristics:the first loan is at a variable rate and incorporates a cap which limits the interest rate to a maximum of 4.735%. It is hedged by a derivative which offsets the option incorporated in the loan,
the second loan is at a fixed rate of 3.62% and incorporates a swap option that enables the Group to opt for a variable rate in 2009. It is hedged by a derivative which has identical characteristics to those of the option incorporated in the loan.
The 500 million euro bond issued by Valeo in 2001 was redeemed
on maturity on July 13, 2006.
•
−
−
Maturities of long-term debt
At december 31
(In millions of euros) 2008 2009 2010 2011 20122013 and
beyond Total
Bond issues - - - - - 595 595
oCeANe - - - 427 - - 427
Syndicated loans - - - - 216 - 216
lease obligations 3 2 1 - - 2 8
other borrowings 2 2 3 4 3 14 28
TOTAL 5 4 4 431 219 611 1,274
4.11.3 - Short-term debt
At december 31
(In millions of euros) 2006 2005 2004
Commercial paper 140 - 50
Short-term loans and overdrafts 134 157 125
Short-term debt 274 157 175
4.11.4 - Cash and cash equivalents
At december 31
(In millions of euros) 2006 2005 2004
marketable securities 97 454 488
Cash 521 495 380
Cash and cash equivalents 618 949 868
▪
2006 Reference document - VALEO 107
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
4.11.5 - Net debt
Net debt is defined as all long-term debt (including current
maturities thereof) and short-term debt, less loans, other non
current financial assets and cash and cash equivalents.
Net debt at January 1, 2005Application of IAS 32 and IAS 39 at January 1, 2005 had the effect
of reducing the Group’s net debt by 23 million euros, mainly
related to adjustments to the OCEANE and treasury stock.
▪
Breakdown of net debt
(In millions of euros) 2006 2005January 1,
2005 2004
long-term debt (note 4.11.2) 1,274 1,303 972 1,027
Current maturities of long-term debt (note 4.11.2) 54 581 188 188
loans and other long-term financial assets (16) (12) (2) (2)
Total long-term debt 1,312 1,872 1,158 1,213
Short-term debt (note 4.11.3) 274 157 175 175
Cash and cash equivalents (note 4.11.4) (618) (949) (836) (868)
Net cash and cash equivalents (344) (792) (661) (693)
Net debt 968 1,080 497 520
4.11.6 - Analysis of net debt by currency
Net debt can be analyzed as follows by currency:
At december 31
(In millions of euros) 2006 2005 2004
euro 1,151 1,179 612
US dollar (52) (64) (44)
Yen 34 110 66
Brazilian Real (22) (25) (15)
Korean Won (59) (44) (47)
Chinese Yuan (24) (21) (23)
other currencies (60) (55) (29)
TOTAL 968 1,080 520
4.12 - Notes to the cash flow statement
4.12.1 - Expenses (income) with no cash effect
(In millions of euros) 2006 2005 2004
Expenses (income) with no cash effect
depreciation, amortization and provisions for impairment 623 639 593
Net charges to/(reversals from) provisions (96) (99) (84)
Customer contributions (51) (35) (13)
losses (gains) on sale of non-current assets (74) 6 11
expenses related to share-based payment 11 7 7
other expenses (income) with no cash effect (2) - 2
TOTAL 411 518 516
▪
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4.12.2 - Changes in working capital
(In millions of euros) 2006 2005 2004
Changes in working capital
Inventories (17) 3 (5)
Accounts and notes receivable 5 53 21
Accounts and notes payable 88 30 51
other receivables and payables (28) 21 (22)
TOTAL 48 107 45
5 - Additional disclosures
5.1 - Segment reporting
The Valeo Group comprises a single business segment
(“Automotive equipment”). The Group’s secondary reporting
level – geographical areas – corresponds to production areas.
Additional information is included in order to provide a more
relevant analysis of the Group’s business.
Balance sheet and statement of income items relating to “Non-
strategic activities” are restated as indicated in note 2.1.
5.1.1 - Reporting by geographical area
(In millions of euros)
Net sales by market
Net sales by production area
Total assets Capital expenditure for the period (1)
Number of employees
2006
europe 6,931 7,327 3,966 437 51,400
North America 1,325 1,263 539 86 7,200
South America 468 454 210 39 3,600
Asia 1,246 1,238 754 87 7,500
eliminations - (312) (147) (2) -
TOTAL 9,970 9,970 5,322 647 69,700
2005
europe 6,785 7,163 4,048 436 51,400
North America 1,364 1,296 575 67 6,800
South America 429 402 195 35 3,400
Asia 1,158 1,134 759 59 7,000
eliminations - (259) (149) (5) -
TOTAL 9,736 9,736 5,428 592 68,600
2004
europe 6,501 6,795 3,802 437 49,700
North America 1,356 1,284 498 59 6,900
South America 320 302 131 17 3,200
Asia 841 808 444 47 4,700
eliminations - (171) (70) (7) -
TOTAL 9,018 9,018 4,805 553 64,500
(1) Capital expenditure in 2006 do not include those related to the Electric Motors & Actuators business which was sold in 2006.
2006 Reference document - VALEO 109
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
total segment assets reconcile to total Group assets as follows:
(In millions of euros) 2006 2005 2004
total segment assets 5,322 5,428 4,805
Financial assets 755 1,117 976
deferred tax assets 96 100 83
Goodwill 1,415 1,484 1,158
TOTAL 7,588 8,129 7,022
Goodwill balances cannot be broken down by geographical area as they are allocated to groups of CGUs which belong to several such
areas.
5.1.2 - Research and development expenditure by Domain of innovation and sales by product group
The objective of the Domains of Innovation is to enhance and support innovation by bringing together different technologies and product
groups in order to propose overall solutions to the market based on the themes of comfort, safety and the environment.
(In millions of euros) 2006 2005 (1) 2004 (1)
driving Assistance 178 175 164
Propulsion efficiency 216 209 180
Comfort enhancement 232 225 199
other 35 37 42
TOTAL 661 646 585
(1) Before taking into account the restatement related to research tax credits (see note 3.3).
the domains of Innovation aim to assist development of sales of the product portfolio, production and sale of which is placed
under the responsibility of the Group’s divisions. the product portfolio is broken down into the following product groups:
(In millions of euros) 2006 2005 2004
transmissions 761 742 693
Climate Control 1,546 1,510 1,397
engine Cooling 1,550 1,475 1,435
lighting Systems 1,189 1,151 1,071
electrical Systems 1,084 1,041 985
Wiper Systems 1,027 1,056 1,163
Security Systems 719 676 661
Switches & detection Systems 829 833 878
electronics & Connective Systems 594 606 672
Compressors 430 398 190
engine management Systems 352 366 -
other and eliminations (111) (118) (127)
TOTAL 9,970 9,736 9,018
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
5.2 - Risk management policy
In the context of its industrial and sales activity, the Group
operates in an international environment in which it is confronted
with market risks, specifically foreign currency risk, price risk and
interest rate risk. It uses derivatives to manage and reduce its
exposure to changes in foreign exchange rates, raw materials
prices and interest rates.
In general, foreign currency risks, price risks in respect of base
metals and interest rate risks for all Group companies are
managed centrally by Valeo.
In addition to market risks, the Group is also exposed to liquidity
risk, financial instrument counterpart risk and to credit risk in
respect of its accounts and notes receivable.
5.2.1 - Market risks
Foreign currency risk
transaction risk
Group subsidiaries may bear transaction risk in respect of
purchases or sales transacted in currencies other than their
functional currency, whether such transactions are already
recognized in the balance sheet or are simply forecast future
▪
transactions. Hedging of subsidiaries’ current and future trading
and investment transactions is generally performed for durations
of less than six months.
Subsidiaries principally hedge their transactions with Valeo, which
hedges net Group positions with external counterparts.
The principal hedging instruments that the Group uses are
forward firm purchases and sales of foreign currencies, swaps
and options.
Not all derivatives used by the Group to hedge its foreign currency
risk qualify as hedging instruments in the meaning ascribed to
that term by IAS 39.
In certain cases, however, the Group applies hedge accounting for
highly probable future flows as from the date that the derivatives
are put in place.
The unrealized loss of less than 1 million euros recognized in
equity at December 31, 2005 was fully reclassified into operating
income for the year.
No foreign currency derivative is recognized as a hedging
instrument, in the meaning ascribed to that term by IAS 39, in
the Group balance sheet at December 31, 2006.
At december 31, 2006, the Group’s net position in its principal currencies excluding functionnal currencies of entities is as
follows:
At december 31
(In millions of euros) uSD Jpy gBp Euro
total assets 228 82 4 414
total liabilities (31) (21) (11) (542)
Net balance sheet position before risk management 197 (61) (7) (128)
Forward sales (189) (80) (8) (7)
Forward purchases 18 30 17 35
Risk management (171) (50) 9 28
Net position after risk management 26 11 2 (100)
Net investment risk
The Group is also exposed to foreign currency risk through its
investments in its foreign subsidiaries, particularly to risks of a
movement in the exchange rate of the currency of the country
in which a subsidiary is located against the euro, which is the
Group’s functional currency. Such movements can impact Group
stockholders’ equity.
The Group can thus decide, on a case-by-case basis, to hedge the
net investment. Any gain or loss resulting from such a hedge will
be deferred by being recognized through stockholders’ equity until
such time as the foreign investment is wholly or partly sold.
No derivative instrument relating to hedging of a net investment is
recognized in the Group balance sheet at December 31, 2006.
Metal price riskIn order to reduce its exposure to changes in prices of non-ferrous
metals, the Group hedges its future purchases of base metals
▪
over a period which is generally less than six months. The raw
materials currently hedged (aluminum, processed aluminum,
copper, zinc, and tin) are quoted on official markets.
The Group favors hedging instruments which do not involve
physical delivery of the underlying commodity: swaps and options
on the average monthly price.
Base metals derivatives used by the Group are designated as
cash flow hedges under IAS 39. An unrealized gain of 6 million
euros related to hedges in place at December 31, 2006 has been
recognized through Group stockholders’ equity.
The unrealized gain of 22 million euros recognized in stockholders’
equity at December 31, 2005 was in respect of hedges on raw
materials purchases in second-half 2005 and was thus fully taken
to operating income in the first half of 2006.
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CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
the unrealized gain of 6 million euros at december 31, 2006 is broken down as follows by type of metal:
At december 31
(In millions of euros) 2006 2005
Aluminum 4 10
Processed aluminum - 2
Copper - 7
tin - -
Zinc 2 3
TOTAL 6 22
64% of the unrealized gain of 6 million euros relates to purchases of raw materials denominated in euros and 36% to purchases
denominated in US dollars.
interest rate riskThe Group uses interest rate swaps to convert exchange rates
on its debt into either a variable or a fixed rate, either as from
origination or during the term of the loan.
The interest rate derivatives used by the Group to hedge against
changes in value of its fixed-rate debt are designated as fair value
hedges under IAS 39. These derivatives are recorded at fair value
in the balance sheet with changes in fair value being taken to
▪ income. The impact on income is offset, for the effective portion,
by a symmetrical revaluation of the hedged component of the
debt. The interest rate derivatives used by the Group to hedge
its variable-rate debt are not designated as hedging instruments
in the meaning ascribed to that term by IAS 39.
The Group’s financing rate was 4.5% in 2006 (4.6% in 2005).
At December 31, 2006, 82% of long-term debt is at a fixed rate
(83% at December 31, 2005)
Fixed-rate position
At december 31
(In millions of euros)
Less than 1 year 1 to 5 years More than 5 years
total assets at fixed rate - - -
total liabilities at fixed rate 53 440 830
Net fixed-rate position before risk management 53 440 830
Risk management - - (225)
Net position after risk management 53 440 605
A decrease in interest rates of 1% would result in a change in the fair value of the net position of about 45 million euros.
Variable-rate position
At december 31
(In millions of euros)
Less than 1 year 1 to 5 years More than 5 years
total assets at variable rate (618) (16) -
total liabilities at variable rate 276 2 1
Net variable-rate position before risk management (342) (14) 1
Risk management (2) - -
Net position after risk management (344) (14) 1
An increase of 1% in interest rates would lead to an increase in interest income of about 4 million euros.
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5.2.2 - Counterpart risk
In the context of financial markets transactions entered into for
the purposes of risk management and treasury management,
the Group is exposed to counterpart risk. Limits have been
set by counterpart, taking account of the ratings of the
counterparts with ratings agencies. This also has the effect of
avoiding excessive concentration of market transactions with
a limited number of banks.
5.2.3 - Liquidity risk
The Group targets maximization of its operating cash flows in
order to be in a position to finance both the investments required
for its development and growth and the dividend paid to its
stockholders.
In addition, the strategy followed aims to ensure that the Group
has the cash resources necessary to meet all circumstances. For
these reasons, the Group borrows long-term funds when market
conditions are favorable, either from banks or by accessing public
debt markets. Thus, in 2005, Valeo issued 600 million euros worth
of Euro Medium Term Notes maturing in 2013. It also took out
two syndicated loans for a total amount of 225 million euros
maturing in 2012.
Valeo also has several confirmed bank credit lines available for an
average period of three years in a total amount of 1.3 billion euros.
None of these credit lines were used at December 31, 2006.
The Group also has a short-term commercial paper financing
program in a maximum amount of 1.2 billion euros and a
medium- and long-term Euro Medium Term Notes financing
program in a maximum amount of 2 billion euros.
Covenants: existing credit lines have an early repayment clause
related to the Group’s debt/equity ratio. This requires that the
Group’s net debt should not exceed 120% of stockholders’
equity. Non-compliance with this ratio causes the credit lines
to be suspended and leads to early reimbursement of prior
drawdowns. At December 31, 2006, the Group’s ratio is well
below this level.
The Euro Medium Term Notes include an option granted to the
bondholders who can request early redemption of their bonds
in the case of a change of control of Valeo which leads to a
downgrade in the bond’s rating to below investment grade.
Such a change of control is deemed to occur if a stockholder, or
several stockholders acting together, acquire(s) more than 50%
of Valeo’s share capital or come(s) to hold more than 50% of
voting rights.
5.2.4 - Credit risk
Through its sales, Valeo is exposed to credit risk, particularly to
risk of default by its customers.
Valeo only operates in the automobile sector and is thus
dependent on the sector’s performance, principally in Europe
and North America.
In 2006, a provision of 2 million euros, in respect of defaults
by second tier customers, was recognized against accounts
receivable.
Valeo works with all automakers in the sector. At December 31,
2006, 20% of the Group’s accounts and notes receivable
correspond to one of Valeo’s four largest customers. Approximately
7% of this line relate to the two largest American automakers. The
downturn in the automobile sector business environment in recent
months has led the Group to strengthen control of customer risks
and settlement periods which may, on a case-by-case basis, be
subject to bilateral renegotiations with customers. The average
settlement period at December 31, 2006 is 69 days.
Valeo also generates more than 7% of its net sales in the
aftermarket. The Group’s numerous, dispersed customer base
in this market is constantly monitored and the risk of default is
covered by a credit insurance policy. These customers represent
slightly more than 7% of Group accounts and notes receivable
at December 31, 2006.
5.2.5 - Financial instruments
Fair value of financial instruments
At december 31
2006
(In millions of euros) Carrying amount Fair value
ASSETS
Non-current financial assets 24 24
Accounts and notes receivable 1,834 1,834
Cash and cash equivalents 618 618
▪
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CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
2006
(In millions of euros) Carrying amount Fair value
LiABiLiTiES
Bonds 595 564
oCeANe (debt component) 427 422
Syndicated loans 216 218
other long-term debt 90 90
Accounts and notes payable 1,955 1,955
Short-term debt 274 274
The fair values of bonds presented above are calculated on the basis of listed prices on active markets. For the debt component of the
OCEANE and for the syndicated loans, fair value is estimated by discounting future cash flows at the market rate applicable at year-end,
taking account of an issuer spread for the Group estimated at 0.549% for the OCEANE and at 0.60% for the syndicated loans.
Fair value of derivatives
Foreign currency derivatives
At december 31
2006
(In millions of euros) Nominal Fair value
Forward foreign currency purchases 24 -
Forward foreign currency sales (48) 1
Currency swaps (120) 1
Total assets (144) 2
Forward foreign currency purchases 33 (1)
Forward foreign currency sales (30) -
Currency swaps (22) -
Total liabilities (19) (1)
Net impact - 1
The fair value of foreign currency derivatives is calculated using the following valuation method: future cash flows are calculated using
forward exchange rates at year-end and are discounted using the interest rate of the valuation currency.
Metals derivatives
At december 31
2006
(In millions of euros) Nominal Fair value
Swaps – Purchases 81 7
Swaps – Sales (2) -
Total assets 79 7
Swaps – Purchases 36 (1)
Swaps – Sales (3) -
Total liabilities 33 (1)
Net impact - 6
The fair value of metal derivatives is calculated using the following valuation method: future cash flows are calculated using forward raw
materials prices and forward exchange rates at year-end and are then discounted using the interest rate of the valuation currency.
▪
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
interest rate derivatives
At december 31
2006
(In millions of euros) Nominal Fair value
Interest rate swaps 227 (9)
TOTAL LiABiLiTiES 227 (9)
The fair value of interest rate swaps is calculated by discounting future cash flows at market interest rates at year-end.
5.3 - Commitments given
To the best of Valeo’s knowledge, no other significant commitments exist or exceptional events have occurred, other than those disclosed
in the notes to the financial statements, that are likely to have a material impact on the business, financial position, results or assets and
liabilities of the Group.
5.3.1 - Lease commitments
Future minimum lease commitments existing at december 31, 2006 (excluding capital leases) are as follows:
At december 31
(In millions of euros) 2006 2005 2004
less than 1 year 34 38 36
1 to 5 years 33 31 29
more than 5 years 9 10 9
TOTAL 76 79 74
lease rentals recognized in expenses in the year were as follows:
(In millions of euros) 2006 2005 2004
Rent 53 56 52
lease commitments in respect of capital leases are as follows:
At december 31
(In millions of euros) 2006 2005 2004
Future minimum lease payments
less than 1 year 8 15 14
1 to 5 years 7 10 15
more than 5 years 2 3 2
TOTAL FuTuRE MiNiMuM LEASE pAyMENTS 17 28 31
of which interest charges (2) (3) (3)
present value of future lease payments
less than 1 year 8 14 13
1 to 5 years 6 9 13
more than 5 years 2 2 2
TOTAL pRESENT VALuE OF FuTuRE LEASE pAyMENTS 16 25 28
2006 Reference document - VALEO 115
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
5.3.2 - Other commitments given
Valeo has also given the following commitments:
(In millions of euros) 2006 2005 2004
Guarantees given 29 30 33
Non-cancellable purchase commitments for fixed assets 72 57 58
other commitments given 101 66 49
TOTAL 202 153 140
Other commitments correspond to warranties granted by Valeo in the context of sale transactions.
the following items, recognized in assets in the Group’s balance sheet, have been pledged as security:
At december 31
(In millions of euros) 2006 2005 2004
Property, plant and equipment 24 84 49
Financial assets 12 12 13
TOTAL 36 96 62
5.3.3 - Claims and litigation
Known claims and litigation involving Valeo or its subsidiaries have been reviewed as of the date of these financial statements. Based on
the advice of counsel, all necessary provisions have been made to cover the estimated contingencies and potential losses.
5.4 - Commitments received
When Valeo purchased the Engine Electronics business of Johnson
Controls Inc. on March 1, 2005, the latter company granted a
warranty concerning the division’s liabilities, including in particular
a four-year warranty in respect of quality and product liability
claims related to the activities of this division.
5.5 - Contingent liabilities
The Group has contingent liabilities relating to legal proceedings
arising in the normal course of its business.
The Group does not expect these items to give rise to material
liabilities other than those that have already been recognized in
its financial statements.
5.6 - French statutory training entitlement
Under the French law of May 4, 2004 relating to professional
training, each French employee of the Group, irrespective of
qualifications, obtained a statutory training entitlement which
can be accumulated and used at the employee’s initiative, subject
to agreement of the employer. Thus, according to the law, each
employee has a new entitlement to at least 20 hours’ training
per year.
The cumulative volume of training hours corresponding to Group
employees’ vested rights under the statutory training entitlement
is 875,000 hours for 2004, 2005 and 2006.
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
5.7 - Related party transactions
5.7.1 - Management and Directors’ remuneration
management and directors are comprised of the members of the Group’s management Committee and its Board of directors.
Remuneration paid during the year is broken down as follows:
(In millions of euros) 2006 2005 2004
Salaries and other short-term benefits 12 12 13
Contract termination payments - - 2
TOTAL 12 12 15
In addition, the Group recorded expenses related to pension
obligations in an amount of 2 million euros in 2006 (2 million
euros in 2005). It also recorded expenses in relation to stock
option and free share plans in an amount of 3 million euros in
2006 (2 million euros in 2005).
At December 31, 2006, provisions included in the Group balance
sheet in respect of these pension obligations amounted to
14 million euros (13 million euros at December 31, 2005).
5.7.2 - Transactions with Associates
The consolidated financial statements include transactions carried out in the normal course of business between the Group and its associates.
These transactions are carried out at market prices.
(In millions of euros) 2006 2005 2004
Sales of goods and services 17 13 3
Purchases of goods and services (7) (18) (17)
Interest and dividends received 3 4 3
At december 31
(In millions of euros) 2006 2005 2004
operating receivables 4 4 4
operating payables 1 1 3
5.7.3 - Transactions with Joint ventures
The consolidated financial statements include transactions carried out in the normal course of business between the Group and its joint
ventures. These transactions are carried out at market prices.
(In millions of euros) 2006 2005 2004
Sales of goods and services 28 25 20
Purchases of goods and services (11) (9) (12)
Interest and dividends received 2 4 9
At december 31
(In millions of euros) 2006 2005 2004
operating receivables 13 10 10
operating payables 5 4 5
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CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
5.8 - Joint ventures
the following amounts are recorded in the Group’s consolidated financial statements in respect of joint ventures consolidated
under the proportionate method of consolidation:
At december 31
(In millions of euros) 2006 2005 2004
Non-current assets 70 51 163
Current assets 101 86 207
Non-current liabilities 12 15 67
Current liabilities 88 75 242
total operating revenues 251 334 681
total operating expenses 244 321 642
5.9 - Subsequent events
On December 4, 2006, Valeo signed a Memorandum of
Understanding with Ford Motor Company for the acquisition of
the Sheldon Road site (Plymouth, Michigan) specialized in the
production of heating systems. This acquisition is subject to the
signature of a new competitive agreement with the United Auto
Workers Union.
This site, which employs approximately 1,250 employees, supplies
climate control systems and radiators to Ford’s North American
factories. Its forecast net sales for 2006 are 350 million euros.
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
6 - Restatement of 2004 and 2005 financial information
IFRS requires that previously published comparative periods be
restated in the following situations:
activities meeting IFRS 5 criteria;
business combinations (recognition of the definitive fair value of
assets acquired and liabilities and contingent liabilities incurred
or assumed when this fair value was estimated on a provisional
basis at the previous balance sheet date);
•
•
changes in accounting policies (subject to the transitional
provisions for first-time application of new standards); and
corrections of prior period errors.
Consequently, certain previously published financial data have
been modified. Such restatements are described below.
•
•
the corresponding impacts (after tax) on stockholders’ equity including minority interests as published on december 31,
2005 and december 31, 2004 are as follows:
(In millions of euros)
As originally reported
Business combinations
Other As restated
Stockholders’ equity at January 1, 2004 1,850 - (8) 1,842
Income and expenses recognized directly through equity (35) - - (35)
Net income for the period 249 - (1) 248
other movements (217) - (217)
Stockholders’ equity at December 31, 2004 1,847 - (9) 1,838
Impact of financial instruments (IAS32, IAS39) 27 - - 27
Stockholders’ equity at January 1, 2005 1,874 - (9) 1,865
Income and expenses recognized directly through equity 102 - - 102
Net income for the period 147 1 - 148
other movements (374) (24) - (398)
Stockholders’ equity at December 31, 2005 1,749 (23) (9) 1,717
6.1 - Business combinations
The impact on stockholders’ equity at December 31, 2005 of
restatements related to business combinations corresponds
to remeasurements, in a total amount of 24 million euros, of
provisions relating to:
the interest previously held in Valeo Thermal Systems Japan
Corp. (previously Zexel Valeo Climate Control);
the interest previously held in Siam Zexel Co. and Valeo
Thermal Systems Sales Thailand Co. Ltd. (previously Zexel Sales
Thailand Co).
•
•
On the other hand, remeasurements of the interests acquired
in these companies in 2005 have no impact on stockholders’
equity as they gave rise to a simultaneous adjustment to goodwill
(cf. note 4.1).
6.2 - other
Other restatements to stockholders’ equity at December 31, 2004
and December 31, 2005 correspond notably to adjustments relating
to pension obligations not previously identified, which have been
recognized as corrections of errors in accordance with IAS 8.
2006 Reference document - VALEO 119
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
7 - list of consolidated companies
2006 2005 2004
Companies Countries % voting rights
%interest
% voting rights
%interest
% voting rights
%interest
Valeo SA (Parent company) France
EuROpE
Cablea (merged with Valeo Câblage) France - - - - 100 100
dAV France 100 100 100 100 100 100
equipement 11 France 100 100 100 100 100 100
equipement 7 France 100 100 100 100 100 100
Valeo Câblage (ex-Cablea and Financière Cablea) France 100 100 100 100 100 100
SC2N France 100 100 100 100 100 100
Société de Participations Valeo France 100 100 100 100 100 100
telma France 100 100 100 100 100 100
Valeo Bayen France 100 100 100 100 100 100
Valeo electronique et Systèmes de liaison France 100 100 100 100 100 100
Valeo embrayages France 100 100 100 100 100 100
Valeo equipements electriques moteur France 100 100 100 100 100 100
Valeo Finance France 100 100 100 100 100 100
Valeo Four Seasons (2) France 50 50 50 50 50 50
Valeo Furukawa Wiring Systems (2) France 50 50 50 50 50 50
Valeo liaisons electriques France 100 100 100 100 100 100
Valeo management Services France 100 100 100 100 100 100
Valeo matériaux de Friction France 100 100 100 100 100 100
Valeo Plastic omnium S.N.C. (2) France 50 50 50 50 50 50
Valeo Sécurité Habitacle France 100 100 100 100 100 100
Valeo Service France 100 100 100 100 100 100
Valeo Switches & detection Systems — VSdS France 100 100 100 100 100 100
Valeo Systèmes de Contrôle moteur France 100 100 100 100 - -
Valeo Systèmes d’essuyage France 100 100 100 100 100 100
Valeo Systèmes thermiques France 100 100 100 100 100 100
Valeo thermique Habitacle France 100 100 100 100 100 100
Valeo Ventures France 100 100 100 100 100 100
Valeo Vision France 100 100 100 100 100 100
Valeo Zexel China Climate Control (merged with Valeo Systèmes thermiques) France - - - - 60 60
(1) Company accounted for by the equity method.(2) Company accounted for on a proportional basis.(3) Company accounted for on a proportional basis on 2004 and fully consolidated since 2005.(4) Company accounted for by the equity method in 2004 and fully consolidated since 2005.(5) Company fully consolidated in 2004 and accounted on a proportional basis since 2005.(6) Company sold in 2005.(7) Company sold in 2006.
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CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
2006 2005 2004
Companies Countries % voting rights
%interest
% voting rights
%interest
% voting rights
%interest
Valeo Componentes Automoviles (7) Spain - - 100 100 100 100
Valeo españa, S.A. Spain 100 100 100 100 100 100
telma Retarder españa, S.A. Spain 100 100 100 100 100 100
Valeo Climatización, S.A. Spain 100 100 100 100 100 100
Valeo Iluminación, S.A. Spain 99.8 99.8 99.8 99.8 99.8 99.8
Valeo materiales de Fricción, S.A. Spain 100 100 100 100 100 100
Valeo Plastic omnium S.l. (2) Spain 50 50 50 50 50 50
Valeo Service españa, S.A. Spain 100 100 100 100 100 100
Valeo Sistemas de Conexion electrica, S.l. Spain 100 100 100 100 100 100
Valeo Sistemas de Seguridad y de Cierre, S.A. Spain 100 100 100 100 100 100
Valeo Sistemas electricos, S.l. Spain 100 100 100 100 100 100
Valeo termico, S.A. Spain 100 100 100 100 100 100
Cablagens do Ave Portugal 100 100 100 100 100 100
Valeo Viana Portugal 100 100 100 100 100 100
Cablauto, S.r.l. Italy 100 100 100 100 100 100
Cavisud, S.r.l. Italy 100 100 100 100 100 100
Valeo Service Italia, S.p.a. Italy 99.9 99.9 99.9 99.9 99.9 99.9
Valeo, S.p.a. Italy 99.9 99.9 99.9 99.9 99.9 99.9
Valeo Cablaggi e Commutazione, S.p.a. Italy 100 100 100 100 100 100
Valeo Sicurezza Abitacolo, S.p.a. Italy 100 99.9 100 99.9 100 99.9
Valeo Sistemi di Climatizzazione, S.r.l. Italy 100 100 100 100 100 100
Valeo Communitazione S.r.l. Italy 99.9 99.9 - - - -
Valeo Auto electric GmbH Germany 100 100 100 100 100 100
Valeo Auto-electric Beteiligungs GmbH Germany 100 100 100 100 100 100
Valeo Germany Holding GmbH Germany 100 100 100 100 100 100
Valeo Holding deutschland GmbH Germany 100 100 100 100 100 100
Valeo Grundvermogen Verwaltung GmbH Germany 100 100 100 100 100 100
Valeo Beleuchtung deutschland GmbH Germany 100 100 100 100 100 100
Valeo Klimasysteme GmbH Germany 100 100 100 100 100 100
Valeo Klimasysteme Verwaltung SAS & Co. KG Germany 100 100 - - - -
Valeo motoren und Aktuatoren GmbH (7) Germany - - 100 100 100 100
(1) Company accounted for by the equity method.(2) Company accounted for on a proportional basis.(3) Company accounted for on a proportional basis on 2004 and fully consolidated since 2005.(4) Company accounted for by the equity method in 2004 and fully consolidated since 2005.(5) Company fully consolidated in 2004 and accounted on a proportional basis since 2005.(6) Company sold in 2005.(7) Company sold in 2006.
2006 Reference document - VALEO 121
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
2006 2005 2004
Companies Countries % voting rights
%interest
% voting rights
%interest
% voting rights
%interest
Valeo Schalter und Sensoren GmbH Germany 100 100 100 100 100 100
Valeo Service deutschland GmbH Germany 100 100 100 100 100 100
Valeo Sicherheitssysteme GmbH Germany 100 100 100 100 100 100
Valeo Verwaltungs-beteiligungs GmbH & Co. KG Germany 100 100 100 100 100 100
Valeo Wischersysteme GmbH Germany 100 100 100 100 100 100
Valeo Compressor europe GmbH (ex-Zexel Valeo Compressor europe GmbH) (3) Germany 100 100 100 100 50 50
Valeo UK ltdUnited
Kingdom 100 100 100 100 100 100
labauto ltdUnited
Kingdom 100 100 100 100 100 100
telma Retarder ltdUnited
Kingdom 100 100 100 100 100 100
Valeo Climate Control ltdUnited
Kingdom 100 100 100 100 100 100
Valeo engine Cooling UK ltd (ex-Valeo Security Systems ltd)
United Kingdom 100 100 100 100 100 100
Valeo Service UK ltdUnited
Kingdom 100 100 100 100 100 100
Valeo Vision Belgique Belgium 100 100 100 100 100 100
Valeo Service Belgique Belgium 100 100 100 100 100 100
Coreval luxembourg 100 100 100 100 100 100
Valeo Holding Netherland B.V. Netherlands 100 100 100 100 100 100
Valeo International Holding B.V. Netherlands 100 100 100 100 100 100
Valeo Service Benelux B.V. Netherlands 100 100 100 100 100 100
Valeo Vymeniky tepla S.r.o.Czech
Republic 100 100 100 100 100 100
Sylea tchequia S.r.o.Czech
Republic 100 100 100 100 100 100
Valeo Autoklimatizace S.r.o.Czech
Republic 100 100 100 100 100 100
Valeo Compressor europe S.r.o. (3)
Czech Republic 100 100 100 100 50 50
Valeo Slovakia S.r.o. Slovakia 100 100 100 100 100 100
Valeo Autosystemy Sp.zo.o. Poland 100 100 100 100 100 100
Valeo Service eastern europe Sp.zo.o. Poland 100 100 100 100 100 100
Valeo electric and electronic Systems Sp.zo.o. Poland 100 100 100 100 100 100
Valeo Auto electric Hungary Spare Parts Production llC Hungary 100 100 100 100 100 100
Valeo Kabli, d.o.o. Slovenia 100 100 100 100 100 100
Valeo Cablaje S.r.l. (ex-Valeo electronice si Sisteme de Conectare Romania) Romania 100 100 100 100 100 100
(1) Company accounted for by the equity method.(2) Company accounted for on a proportional basis.(3) Company accounted for on a proportional basis on 2004 and fully consolidated since 2005.(4) Company accounted for by the equity method in 2004 and fully consolidated since 2005.(5) Company fully consolidated in 2004 and accounted on a proportional basis since 2005.(6) Company sold in 2005.(7) Company sold in 2006.
2006 Reference document - VALEO122
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
2006 2005 2004
Companies Countries % voting rights
%interest
% voting rights
%interest
% voting rights
%interest
Valeo electrical Connective Systems S.r.l. Romania 100 100 100 100 - -
Cablea tunisie, S.A. tunisia 100 100 100 100 100 100
dAV tunisie tunisia 100 100 100 100 100 100
Société tunisienne de Câblages S.t.C. tunisia 100 100 100 100 100 100
Valeo mateur (ex-Sylea tunisie) tunisia 100 100 100 100 100 100
Valeo embrayages tunisie S.A. tunisia 100 100 100 100 100 100
Valeo Bouskoura (ex-Cabelec) morocco 100 100 100 100 100 100
Valeo Ain Sebaa (ex-Cablea maroc) morocco 100 100 100 100 100 100
Cablinal maroc, S.A. morocco 100 100 100 100 100 100
Valeo Bouznika morocco 100 100 100 100 100 100
Nursan ed (1) turkey 40 40 40 40 40 40
Nursan oK (1) turkey 40 40 40 40 40 40
Valeo otomotiv dagitim A.S. turkey 100 100 100 100 100 100
Valeo otomotiv Sistemleri endustrisi A.S. turkey 100 100 100 100 100 100
Valeo Interbranch Automotive Software (egypt) egypt 100 100 - - - -
Valeo Systems South Africa (Proprietary) ltd South Africa 51 51 51 51 51 51
NoRtH AmeRICA
Valeo Aftermarket, Inc. United States 100 100 100 100 100 100
Valeo electrical Systems, Inc. United States 100 100 100 100 100 100
Valeo Investment Holdings, Inc. United States 100 100 100 100 100 100
Valeo Raytheon Systems, Inc. (5) United States 77.2 77.2 73.1 73.1 66.6 66.6
Valeo Compressor North America, Inc. (ex-Selective technology, Inc.) (3) United States 100 100 100 100 50 50
telma Retarder Inc. United States 100 100 100 100 100 100
Valeo Acustar thermal Systems, Inc. United States 51 51 51 51 51 51
Valeo Climate Control Corp. United States 100 100 100 100 100 100
Valeo Friction materials, Inc. United States 100 100 100 100 100 100
Valeo, Inc. United States 100 100 100 100 100 100
Valeo Switches & detection Systems, Inc. United States 100 100 100 100 100 100
Valeo Sylvania, llC (2) United States 50 50 50 50 50 50
Valeo Sylvania Services, S de Rl de CV (2) mexico 50 50 50 50 50 50
Valeo termico, SA de CV mexico 100 100 100 100 100 100
delmex de Juarez S de Rl de CV mexico 100 100 100 100 100 100
(1) Company accounted for by the equity method.(2) Company accounted for on a proportional basis.(3) Company accounted for on a proportional basis on 2004 and fully consolidated since 2005.(4) Company accounted for by the equity method in 2004 and fully consolidated since 2005.(5) Company fully consolidated in 2004 and accounted on a proportional basis since 2005.(6) Company sold in 2005.(7) Company sold in 2006.
2006 Reference document - VALEO 123
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
2006 2005 2004
Companies Countries % voting rights
%interest
% voting rights
%interest
% voting rights
%interest
telma Retarder de mexico, SA de CV mexico 100 100 100 100 100 100
Valeo Automotive electrical Systems de mexico, SA de CV mexico 100 100 100 100 100 100
Valeo Sistemas electricos, SA de CV mexico 100 100 100 100 100 100
Valeo Sistemas electricos Servicios, S de Rl de CV mexico 100 100 100 100 100 100
Valeo Sistemas electronicos, S de Rl de CV mexico 100 100 100 100 100 100
Valeo Sylvania Iluminaciòn, S de Rl de CV (2) mexico 50 50 50 50 50 50
Valeo termico, SA de CV mexico 100 100 100 100 100 100
Valeo termico Servicios, S de Rl de CV mexico 100 100 100 100 100 100
Valeo Climate Control de mexico, SA de CV mexico 100 100 100 100 100 100
Valeo Climate Control de mexico Servicios, S de Rl de CV mexico 100 100 100 100 100 100
Valeo materiales de Fricciòn de mexico, SA de CV mexico 100 100 100 100 100 100
SoUtH AmeRICA
Valeo Climatizacao Brasil (merged with Valeo Sistemas Automotivos ltda) Brazil - - - - 100 100
Valeo Sistemas Automotivos ltda Brazil 100 100 100 100 100 100
Cibié Argentina, SA Argentina 100 100 100 100 100 100
dAV Argentina, SA (merged with Cibié Agentina, SA) Argentina - - - - 100 100
emelar Sociedad Anonima Argentina 100 100 100 100 100 68
Il tevere (6) Argentina - - - - 50 50
Interclima (6) Argentina - - - - 50 26
mirgor (6) Argentina - - - - 50 26
Valeo embragues Argentina, SA Argentina 100 100 100 100 68 68
Valeo termico Argentina, SA Argentina 100 100 100 100 100 100
ASiA
Valeo Armco engine Cooling Co. (2) Iran 51 51 51 51 - -
Valeo Compressor (thailand) Co. ltd (ex-Zexel Valeo Compressors) (3) thailand 98.5 98.5 98.5 98.5 50 48.1
Valeo Compressor Clutch (thailand) Co. ltd (ex-Zexel Clutches Co. ltd) (3) thailand 97.3 97.3 97.3 97.3 50 48.1
Valeo Siam thermal Systems Co.ltd (ex-Siam Zexel Co. ltd) (4) thailand 74.9 74.9 74.9 74.9 39 19.5
Valeo thermal Systems Sales (thaïland) (ex-Zexel Sales thailand) (4) thailand 74.9 74.9 89.9 74.9 7,8 7.8
(1) Company accounted for by the equity method.(2) Company accounted for on a proportional basis.(3) Company accounted for on a proportional basis on 2004 and fully consolidated since 2005.(4) Company accounted for by the equity method in 2004 and fully consolidated since 2005.(5) Company fully consolidated in 2004 and accounted on a proportional basis since 2005.(6) Company sold in 2005.(7) Company sold in 2006.
2006 Reference document - VALEO124
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Notes to consolidated financial statements
2006 2005 2004
Companies Countries % voting rights
%interest
% voting rights
%interest
% voting rights
%interest
Valeo electrical Systems Korea ltd South Korea 100 100 100 100 100 100
Valeo Pyeong Hwa Co. ltd (2) South Korea 50 50 50 50 50 50
Valeo Pyeong Hwa distribution Co. ltd (2) South Korea 50 50 50 50 50 50
Valeo Samsung thermal Systems (2) South Korea 50 50 - - - -
Valeo Compressor Korea Co. ltd (ex-Zexel Valeo Climate Control Korea Co. ltd) (3) South Korea 100 100 100 100 50 50
dae myong Precision Corporation (3) South Korea 100 100 100 100 50 50
Konno Sangyo Co. ltd (7) Japan - - 100 100 50 50
Zexel logistics Company (Butsuryu) (7) Japan - - 100 100 50 50
Zexel logitec Company (7) Japan - - 100 100 50 50
Ichikoh Industries limited (1) Japan 29.4 29.4 28.2 28.2 22.7 22.7
Valeo engine Cooling Japan Co. ltd Japan 100 100 100 100 100 100
Valeo Unisia transmissions K.K. Japan 66 66 66 66 66 66
Valeo thermal Systems Japan Corp. (ex-Zexel Valeo Climate Control Corporation) (3) Japan 100 100 100 100 50 50
Valeo Automotive transmissions Systems (Nanjing) Co. ltd China 100 100 - - - -
Hubei Valeo Autolighting Company ltd China 100 100 75 75 75 75
Valeo Automotive Air Conditioning Hubei Co. ltd China 55 55 55 55 55 33
Faw Valeo Climate Control System (1) China 36.5 36.5 36.5 36.5 36.5 21.9
Huada Automotive Air Conditioner Co. ltd (1) China 30 30 30 30 30 15
Valeo lighting Hubei technical center Co. ltd China 100 100 100 100 100 100
Nanjing Valeo Clutch Co. ltd (2) China 55 55 55 55 50 50
Shanghai Valeo Automotive electrical Systems Company ltd (2) China 50 50 50 50 50 50
Valeo Shanghai Automotive electric motors & Wiper Systems Co. ltd China 55 55 55 55 55 55
taizhou Valeo-Wenling Automotive Systems Co. ltd China 100 100 55 55 55 55
telma Vehicle Braking System (Shanghai) Co. ltd China 70 70 70 70 - -
Shenzhen Valeo Hangsheng Automotive Switches & detection Syst. Co. ltd China 75 75 75 75 - -
Valeo Automotive Security Systems (Wuxi) Co. ltd China 100 100 100 100 - -
(1) Company accounted for by the equity method.(2) Company accounted for on a proportional basis.(3) Company accounted for on a proportional basis on 2004 and fully consolidated since 2005.(4) Company accounted for by the equity method in 2004 and fully consolidated since 2005.(5) Company fully consolidated in 2004 and accounted on a proportional basis since 2005.(6) Company sold in 2005.(7) Company sold in 2006.
2006 Reference document - VALEO 125
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Notes to consolidated financial statements
2006 2005 2004
Companies Countries % voting rights
%interest
% voting rights
%interest
% voting rights
%interest
Valeo Fawer Compressor (Changchun) Co. ltd (2) China 60 60 60 60 - -
Valeo management (Beijing) Co. ltd China 100 100 - - - -
Foshan Ichikoh Valeo Auto lighting Systems Co. ltd (2) China 50 50 - - - -
Valeo engine Cooling (Shashi) Co. ltd China 100 100 - - - -
Pt Valeo AC Indonesia (1) Indonesia 49 49 49 49 49 24.5
Valeo engineering Center (India) Private limited India 100 100 - - - -
Amalgamations Valeo Clutch Private limited (2) India 50 50 50 50 50 50
Valeo Friction materials India limited India 60 60 60 60 60 60
(1) Company accounted for by the equity method.(2) Company accounted for on a proportional basis.(3) Company accounted for on a proportional basis on 2004 and fully consolidated since 2005.(4) Company accounted for by the equity method in 2004 and fully consolidated since 2005.(5) Company fully consolidated in 2004 and accounted on a proportional basis since 2005.(6) Company sold in 2005.(7) Company sold in 2006.
2006 Reference document - VALEO126
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Statutory auditors' report on the 2006 IFRS consolidated financial statements
Statutory auditors' report on the 2006 IFRS consolidated financial statements
Year ended december 31, 2006
Following our appointment as statutory auditors by your Annual General Meeting, we have audited the accompanying consolidated financial
statements of Valeo (the Company) for the year ended December 31, 2006, as presented on pages 71 to 125.
The consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these consolidated
financial statements based on our audit.
This is a free translation into English of the statutory auditors’ report issued in French and is provided solely for the convenience
of English speaking users. The statutory auditors’ report includes information specifically required by French law in such reports,
whether modified or not. This information is presented below the opinion on the consolidated financial statements and includes
an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters. These
assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a
whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated
financial statements.
This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards
applicable in France.
opinion on the consolidated financial statements
We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of
the consolidated group as at December 31, 2006 and of the results of its operations for the year then ended in accordance with IFRSs as
adopted by the European Union.
Justification of our assessments
In accordance with the requirements of article L. 823-9 of the French Commercial Code (Code de commerce) relating to the justification
of our assessments, we bring to your attention the following matters:
The Company records provisions related to pensions and other post-employment benefits in accordance with the policy described in
note 1.17 to the consolidated financial statements. Such obligations have generally been determined with the assistance of independent
2006 Reference document - VALEO 127
CoNSolIdAted FINANCIAl StAtemeNtS 2006 3Statutory auditors' report on the 2006 IFRS consolidated financial statements
Paris La Défense and Neuilly-sur-Seine, February 12, 2007
actuaries. We have reviewed the data and assumptions used and the calculations completed. We have not identified any item that could
affect the amounts and methods used to account for pensions and other post-employment benefits.
The Company performs at the end of each year impairment tests of the amounts recorded as goodwill and also assesses whether
indicators point to a lasting impairment of fixed assets in accordance with the policy described in note 1.12 to the consolidated financial
statements. We have reviewed the methods and assumptions used by the Company in preparing the accounts and we have verified that
such assumptions were reasonable.
These assessments were made in the context of our audit of the consolidated financial statements taken as a whole, and therefore
contributed to the opinion which is expressed in the first part of this report.
Specific verification
In accordance with professional standards applicable in France, we have also verified the information given in the group’s management
report. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.
the Statutory Auditors
Salustro Reydelmember of KPmG International PricewaterhouseCoopers Audit
Jean-Pierre Crouzet emmanuel Paret Serge Villepelet Jean-Christophe Georghiou
2006 Reference document - VALEO128
CoNSolIdAted FINANCIAl StAtemeNtS 20063 Statutory auditors' report on the 2006 IFRS consolidated financial statements
2006 Reference document - VALEO 129
4CoRpoRate GoveRnanCe
Report of the Chairman of the Board of Directors relating to the conditions of preparation and organization of the Board’s work, the possible limitations to the powers of the Chief Executive Officer and the internal control procedures put in place by the Valeo Group P. 130
Composition of the Board of Directors at December 31, 2006 P. 139
Statutory Auditors’ Report on the report of the Chairman of the Board of Directors P. 142
2006 Reference document - VALEO130
CORPORAtE GOVERnAnCE4 Report of the Chairman of the Board of Directors
Report of the Chairman of the Board of Directors relating to the conditions of preparation and organization of the Board’s work, the possible limitations to the powers of the Chief Executive Officer and the internal control procedures put in place by the Valeo Group
1. Preparation and organization of the work of the Board of Directors
On March 31, 2003, the Board of Directors adopted Internal Rules in
line with the recommendations of the Bouton Report on corporate
governance, aimed at precisely defining the operating procedures
of the Board, in addition to legal and regulatory requirements
and the provisions of the Company’s bylaws. These Internal Rules
were amended on July 24, 2006 in order to authorize Directors to
participate in Board meetings by videoconference, or by any other
telecommunication means that enables them to be identified
and ensures that they actually participate in the meeting. On
December 14, 2006 the Internal Rules were further amended
following the merger of the Nomination and Remuneration
Committees, and the dissolution of the Strategy Committee (see
“Committees created by the Board” below).
1.1. Rules specific to the functioning and organization of the Board and their application
1.1.1. Composition of the Board of Directors
The bylaws provide that the Board of Directors must have between
3 and 18 members. Following the appointment of Daniel Camus
and Jérôme Contamine as Directors at the General Shareholders’
Meeting held on May 17, 2006 and the resignation of Carlo De
Benedetti effective from July 13, 2006, the Board currently has
11 members.
Details concerning the composition of the Board of Directors are
set out in the appendix to this report.
In accordance with the independence criteria set out in the
Board’s Internal Rules, the Board of Directors has reviewed
whether or not its members continue to classify as independent.
Under these rules, independent Directors are those who have
no relations whatsoever with the Company, the Group or the
Group’s management that may compromise his or her ability to
exercise freedom of judgment.
In particular, a Director is presumed to be independent if he/she:
is not an employee or a corporate officer of the Company, or an
employee or Director of one of its consolidated subsidiaries, and
has not been in such a position for the previous five years;
is not a corporate officer of a company in which the Company
holds a directorship, either directly or indirectly, or in which an
employee appointed in that role, or a corporate officer of the
Company (currently in office or having held such office in the
past five years), is a Director;
is not a customer, supplier, investment banker or commercial
banker that is material for the Company or Group, or for which
the Company or Group represents a significant portion of the
business of the Director concerned;
is not related by close family ties to a corporate officer;
has not been an auditor of the Company in the past five
years;
has not been a Director of the Company for more than twelve
years on the date when he/she was appointed to his/her
current term of office.
For Directors holding in excess of 10% of the Company’s capital
and/or voting rights, or representing a business that holds such
a stake, the classification as independent takes into account the
Company’s ownership structure and any potential conflict of
interests.
In application of these criteria, the Board of Directors noted that:
one Director is both Chairman and Chief Executive Officer of the
Company: Thierry Morin;
three Directors have been members of the Board of Directors
(and previously the Supervisory Board) for over twelve years:
Yves-André Istel, Alain Minc, and Erich Spitz;
•
•
•
•
•
•
•
•
2006 Reference document - VALEO 131
CORPORAtE GOVERnAnCE 4Report of the Chairman of the Board of Directors
seven Directors are independent with respect to the criteria
set forth in the Internal Rules and in accordance with the
recommendations set out in the Bouton Report on corporate
governance: Pierre-Alain De Smedt, François Grappotte,
Philippe Guédon, Jean-Bernard Lafonta and Véronique Morali,
as well as Daniel Camus and Jérôme Contamine, following
their appointment by the General Shareholders’ Meeting on
May 17, 2006.
1.1.2. Average period of notice for calling Board meetings
In accordance with the Internal Rules, each Director is notified of
the dates of Board meetings at the beginning of each fiscal year
at the latest. The average period of notice for calling Board of
Directors’ meetings is approximately two weeks.
1.1.3. Representation of Directors
A Director may be represented at meetings of the Board of
Directors by another Director. The proxy must be given in writing.
During the 2006 fiscal year, eight Directors used the possibility of
being represented at Board meetings.
1.1.4. Chairman of Board meetings
The Board meetings are chaired by the Chairman of the Board or,
in his/her absence, by a Vice-Chairman or a Director designated
by the Board of Directors. All ten Board meetings held during the
2006 fiscal year were chaired by the Chairman.
1.1.5. Directors’ participation in Board meetings
Following the General Shareholders’ Meeting held on May 17,
2006, article 16 of the Company’s bylaws and the Internal Rules
were amended in order to authorize Directors to participate in
Board meetings by any telecommunication technology that
enables them to be identified and ensures that they actually
participate in the meeting. Accordingly, Directors who take part in
Board meetings through such means are deemed to be present
for the purposes of calculating the quorum and majority, except at
meetings dedicated to the preparation of the annual Company and
consolidated financial statements and the related management
reports (as provided for in articles L. 232-1 and L. 233-16 of the
French Commercial Code). The Chairman is required to state in
the relevant notice of meeting if these methods can be used
for certain meetings. Directors wishing to participate in a Board
meeting by these methods must contact the Board Secretary at
least 2 (two) working days before the meeting date (except in an
emergency situation) in order to ensure that the relevant technical
information can be exchanged and tests performed before the
meeting takes place.
• 1.2. Directors’ access to information
1.2.1. Directors’ access to information
Each Director is given all the information required to perform his
or her duties and can ask for any document he or she deems
useful. The Chairman provided this information within a sufficient
timeframe in 2006.
1.2.2. Guests of the Board
During the year, the Group Financial Control Director attended
all Board meetings except those held on March 3, 2006 and
November 20, 2006 which were attended by the Financial
Controller of the Industrial Branches. The lawyers and bankers
representing Valeo as well as the Vice-President, Financial Affairs
participated in the Board meeting held to review the merger
between Valeo and Visteon.
1.3. Frequency of Board meetings and average attendance rates of the Directors
In accordance with the Internal Rules of the Board, the Board of
Directors meets at least four times a year. The Board of Directors
met on ten occasions in 2006.
The average attendance rate of the members of the Board of
Directors (in person or via proxy) during 2006 was 92%. The
average attendance rate of the members of the Board of Directors
in person during 2006 was 80%.
1.4. Role of the Board
The principal role of the Board of Directors is to determine
the business strategies of the Company and oversee their
implementation.
In 2006 the Board of Directors analyzed the 2005 financial
statements of the Company and the Group, assessed the
performance of the Board, reviewed whether the Directors were
still classified as independent in accordance with the criteria set
out in the Board’s Internal Rules, examined the management
forecasts and budget for 2006, reviewed the Group’s strategic
transactions (particularly disposals and acquisitions), heard the
reports on the work carried out by the various Board Committees,
merged the Nomination and Remuneration Committees, dissolved
the Strategy Committee, authorized the Chairman to issue bonds
(either under a renewed EMTN program or otherwise) and granted
stock options and consideration-free shares to the employees and
corporate officers who had been the most directly involved in the
Group’s development.
2006 Reference document - VALEO132
CORPORAtE GOVERnAnCE4 Report of the Chairman of the Board of Directors
1.5. Committees created by the Board
In 2003, the Board created four committees to improve its
functioning and provide effective assistance for preparing its
decisions: the Strategy Committee, the Audit Committee, the
Remuneration Committee and the Nomination Committee.
At the Board meeting of December 14, 2006, the Nomination
Committee was merged with the Remuneration Committee
and the Strategy Committee was dissolved. The Board therefore
currently has two standing committees – the Audit Committee
and the Nomination and Remuneration Committee.
The work of the Strategy, Audit, Remuneration and Nomination
Committees was presented to the Board of Directors throughout
the year in the form of reports and is summarized below.
1.5.1. Audit Committee
The Audit Committee has four members including a Chairman,
appointed by the Board of Directors. All members of the Audit
Committee are independent Directors as defined by the criteria
in the Internal Rules.
The members of the Audit Committee are Pierre-Alain De Smedt,
François Grappotte, Jean-Bernard Lafonta and Daniel Camus (since
November 20, 2006). The Audit Committee is chaired by Pierre-
Alain De Smedt.
The Committee’s roles and responsibilities are:
to ensure the relevance and due application of the accounting
and financial methods adopted to prepare the consolidated
financial statements, as well as the appropriate accounting
treatment of transactions at both product-family and Group
level;
to check that internal procedures are defined for compiling
and controlling financial and accounting information in order
to ensure its reliability and guarantee rapid reporting, to review
the Group’s internal audit plan and Management’s related
comments, and to keep informed of the Group’s internal and
external audits and Management’s related comments;
to express an opinion on the choice of Statutory Auditors or the
renewal of their terms of office;
to review any financial or accounting matter referred to it by
the Chairman of the Board of Directors as well as any conflict
of interest issue of which it is aware.
The Audit Committee met four times in 2006 with a 66%
attendance rate. During these meetings, the Committee reviewed
the consolidated financial statements for the year ended
December 31, 2005 and the interim financial statements for first-
half 2006. The Committee particularly focused on the application
of International Financial Reporting Standards (IFRS) which were
adopted for the first time in 2005, as well as the restatement of
2004 data. The members of the Audit Committee also reviewed
the operations carried out by the Internal Audit Department in
2006 as well as the methodology used for risk mapping and the
internal audit work schedule for 2007.
•
•
•
•
The Audit Committee’s work was conducted in line with its
objectives. The Statutory Auditors and the Group Financial
Controller (or, where applicable, the Financial Controller of the
Industrial Branches) attended all of the meetings held in 2006.
The Committee was also assisted by the work carried out by
the Internal Audit Department. The presentations made by the
Statutory Auditors mainly related to the findings of their audit of
the annual financial statements of the Company and the Group
and their limited review of the interim financial statements. The
Audit Committee did not have any reservations concerning the
annual consolidated and Company financial statements or the
interim financial statements presented to it.
1.5.2. Nomination and Remuneration Committee
The Nomination Committee and the Remuneration Committee
– which were set up in 2003 – were merged on December 14,
2006 and renamed the Nomination and Remuneration Committee.
The work carried out by the separate committees during 2006
is set out below.
1.5.2.1. the work of the Remuneration Committee
in 2006
Prior to its merger with the Nomination Committee, the
Remuneration Committee had three members appointed by
the Board of Directors, including a Chairman and two Directors
classified as independent in accordance with the criteria in the
Internal Rules: Alain Minc (Chairman), François Grappotte and
Philippe Guédon.
The Remuneration Committee met on two occasions in 2006,
with a 100% attendance rate. The roles and responsibilities of
this Committee were:
to study and make recommendations concerning compensation
paid to corporate officers;
to recommend to the Board the rules for allocating attendance
fees; and
to examine any issues submitted to it by the Chairman, including
plans to launch employee share issues.
During its meetings, the Committee drew up proposals relating
to the compensation to be paid to the Chairman and Chief
Executive Officer and recommended to the Board that Thierry
Morin should be granted 150,000 stock options and 50,000 shares
free of consideration (see “Compensation paid to the Chairman
and Chief Executive Officer”). This recommendation was approved
by the Board of Directors on March 3, 2006. During its meeting
of November 20, 2006 the Board also approved the proposal by
the Remuneration Committee to grant a total of 1,309,250 stock
options to the employees and corporate officers who had been the
most directly involved in the Group’s development and 100,000
consideration-free shares to high potential junior managers.
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1.5.2.2. the work of the nomination Committee in 2006
Prior to its merger with the Remuneration Committee on
December 14, 2006, the Nomination Committee had five
members appointed by the Board of Directors, including a
Chairman and three Directors classified as independent in
accordance with the criteria in the Internal Rules: Alain Minc
(Chairman), François Grappotte, Philippe Guédon, Thierry Morin
and Véronique Morali.
The Nomination Committee met twice in 2006, with a 90%
attendance rate.
During the year, the Committee examined whether the Directors
were still classified as independent in accordance with the
criteria set out in the Board’s Internal Rules. It also reviewed
the composition of the Company’s corporate governance bodies
and recommended to the Board that Daniel Camus and Jérôme
Contamine should be put forward as directorship candidates at
the General Shareholders’ Meeting of May 17, 2006.
1.5.2.3. Merger of the nomination Committee and
the Remuneration Committee into a single
nomination and Remuneration Committee
At its December 14, 2006 meeting, the Board of Directors decided
to merge the separate Nomination and Remuneration Committees
into a single Nomination and Remuneration Committee. The
members of this new committee are Alain Minc (Chairman),
François Grappotte, Philippe Guédon and Véronique Morali.
According to its Internal Rules, the roles and responsibilities
of the Nomination and Remuneration Committee include the
following:
Concerning remuneration: studying and making recommendations concerning the compensation paid to corporate officers (particularly in relation to the variable portion of their compensation),
recommending to the Board an aggregate amount of attendance fees payable to Directors and the individual amounts payable to each Director,
providing recommendations to the Board of Directors on the Group’s general stock option policy and specific stock option grants;
Concerning selections and nominations: preparing the composition of the Company’s corporate governance bodies by making recommendations for the appointment of corporate officers and Directors,
reviewing the position of each Director in relation to the independence criteria set out in paragraph 1.2(b) of the Board’s Internal Rules.
1.5.3. Strategy Committee
Before it was dissolved on December 14, 2006, the Strategy
Committee had five members appointed by the Board of Directors,
including a Chairman and two independent Directors as defined
by the criteria set forth in the Internal Rules: Philippe Guédon
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(Chairman), Jean-Bernard Lafonta, Alain Minc, Thierry Morin and
Erich Spitz.
The roles and responsibilities of the Strategy Committee were:
to express an opinion to the Board concerning the strategic
goals of the Company and the Group and any other major
strategic issue referred to the Committee by the Board or the
Chairman;
to analyze annual budgets and interim reviews, as well as
the medium- and long-term strategic development plans of
the Group.
The Committee’s role also included examining and expressing
an opinion to the Board on issues submitted to it concerning
major transactions including acquisitions, disposals, financing
and debt.
The Strategy Committee met three times during 2006 with a 93%
attendance rate. During its meetings, the Committee reviewed
the Group’s results, studied certain planned acquisitions and
reviewed the strategy, roles and responsibilities of each of Valeo’s
three Domains.
At its December 14, 2006 meeting, the Board of Directors decided
that strategic issues concerning the Group will henceforth be
discussed in full Board meetings and tasked Philippe Guédon
with carrying out any preparatory work required to facilitate such
discussions during these meetings.
1.6. Evaluation of the Board of Directors
In accordance with the Internal Rules, the Board carries out a
self-assessment to review its modus operandi and to ensure that
its meetings are properly organized.
In 2006, this assessment was performed with the assistance of
an external firm during the last quarter of the year. A detailed
questionnaire was sent to all Directors concerning their assessment
of the way in which the Board operates and suggestions for
improvement. The topics covered included the operation and
composition of the Board, Directors’ access to information, the
choice of issues discussed, as well as the quality of the discussions
and the general functioning of the Board Committees.
The Directors’ replies were analyzed and the findings presented
at the meeting of the Board held on February 12, 2007. The vast
majority of the Directors stated that the organization of the Board’s
work and the quality of its discussions had improved since the
last evaluation, enabling members of the Board to be involved in
all key decisions relating to the Group’s future. They did however
put forward a number of recommendations on how to improve
the way the Board operates.
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1.7. Shareholdings and securities transactions
Each Director must hold at least 100 Valeo shares during his or
her entire term of office.
On accepting their position, members of the Board of Directors
and the Executive Management of the Group agreed to a Code
of Conduct in relation to trading in the Company’s securities.
This Code was updated twice by the Board of Directors in 2006.
Under the terms of the Code, Directors must declare to the
Group’s General Counsel any transactions that they have entered
into involving the Company’s securities, within a maximum of
five trading days following the transaction. In accordance with
applicable regulations, this information must then be disclosed to
the French securities regulator (Autorité des Marchés Financiers)
and subsequently made public.
1.8. Agreements governed by Article L. 225-38 of the French Commercial Code
At its meeting of October 18, 2004, the Board of Directors
authorized a number of transactions governed by the procedures
concerning regulated, related-party agreements. The agreements
concerned – which were entered into between the Company
and its Spanish subsidiaries as part of the implementation of the
2004 Valeorizon international employee stock ownership plan
– remained in force during 2006.
The agreements authorized by the Board of Directors at its
December 15, 2005 meeting – which were entered into between
the Company and the Group’s operating subsidiaries in connection
with trademark royalties agreements – also remained in force
during the year.
At its meeting of October 6, 2006 the Board of Directors authorized
the signature of a consulting agreement with Yves-André Istel,
covering assistance and advisory services provided in connection
with the study group’s possible merger with Visteon.
1.9. Authorization granted regarding sureties, endorsements and guarantees governed by Article L. 225-35 of the French Commercial Code
During the year the Board of Directors authorized the Chairman,
who is entitled to delegate this authority, to issue sureties,
endorsements and guarantees in the Company’s name up to a
maximum amount of 23 million euros, and to maintain in effect
the sureties, endorsements and guarantees previously issued.
This authorization, which was granted for a 12-month period,
expires on February 9, 2007. No new commitments were given
by the Chairman under this authorization during 2006.
1.10. General management of the Company and limitations on the powers of the Chief Executive Officer
The Company’s Board of Directors has chosen to combine the
positions of Chairman of the Board of Directors and Chief Executive
Officer.
The Board of Directors has not imposed any specific limits on the
powers of the Chief Executive Officer. The Chairman and Chief
Executive Officer therefore has the widest possible powers to act
in any circumstances in the Company’s name. He exercises his
powers within the scope of the Company’s corporate purpose
and subject to the powers that the law specifically grants to
Shareholders’ Meetings or the Board of Directors. The Chairman
and Chief Executive Officer represents the Company in its relations
with third parties.
1.11. Compensation paid to the Chairman and Chief Executive Officer
1.11.1. Compensation paid during 2006
Acting on the recommendation of the Remuneration Committee,
at its February 9, 2006 meeting the Board of Directors approved
the principles for calculating the compensation and benefits-in-
kind granted to the Chairman and Chief Executive Officer.
Fixed compensation
The total gross fixed compensation paid to Thierry Morin for 2006
was set at 1,519,538 euros, breaking down as 1,500,288 euros in
gross compensation (including travel expenses), and 19,251 euros
in benefits-in-kind.
Exceptional bonus
Thierry Morin did not receive any exceptional compensation in
2006 for 2005.
At its meeting of February 9, 2006, the Board of Directors decided
that any exceptional bonus to be awarded to the Chairman and
Chief Executive Officer for 2006 would be exclusively contingent
on the level of gross margin and operating margin achieved by
the Group, and would be subject to a ceiling set by the Board.
Attendance fees
In 2006, Thierry Morin received 35,000 euros in attendance fees
in his capacity as a Director of Valeo.
Compensation paid by companies controlled by Valeo
In 2006 Thierry Morin received total gross compensation of
120,883 euros from companies controlled by Valeo (as defined
in article L. 233-16 of the French Commercial Code). This total was
made up of 45,750 euros in attendance fees and 75,133 euros in
contributions to a pension fund. Thierry Morin did not receive any
benefits in kind in 2006 from companies controlled by Valeo.
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Stock options and shares awarded free of consideration
(share awards)
In view of the prohibited periods set down by French stock
exchange regulations, the Board of Directors did not grant any
stock options or share awards to Thierry Morin during 2005. At
its March 3, 2006 meeting, the Board granted Thierry Morin
150,000 stock options and 50,000 shares free of consideration,
in accordance with the following terms and conditions: the purchase price of the shares to be issued on exercise of the options is set at 33.75 euros. Half of the options granted may be exercised as from March 3, 2008 and all of the options may be exercised as from March 3, 2009. The shares obtained on exercise of the options may not be sold before March 3, 2010. If the options are not exercised they will be forfeited on March 2, 2014;
the vesting date for the shares awarded free of consideration was set by the Board of Directors at June 3, 2008 subject to the following conditions: (i) Thierry Morin must still hold an employment contract or a corporate officer’s position within the Valeo Group at June 3, 2008, and (ii) the achievement of certain performance criteria concerning operating margin targets for 2006 and 2007 (applicable to the vesting of 30,000 of the total shares awarded).
In 2006, Thierry Morin did not exercise any options granted in
previous years.
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1.11.2. Pension scheme
Thierry Morin is still a member of the supplementary pension
scheme set up for executives who were formerly members of
Valeo’s Management Board, as approved by the Supervisory Board
on October 17, 2003. This system is designed to top up existing
pension benefits (statutory pension, ARRCO, AGIRC, etc.) to enable
beneficiaries to acquire benefits representing 2% of their final
salary per year of service with the Group. The total amount of
pension benefits may not exceed 60% of a beneficiary’s final
salary and the scheme will only apply to beneficiaries who have
a minimum of 15 years’ service in the Valeo Group when they
retire and for whom Valeo or one of its subsidiaries was their last
employer at their retirement date.
1.11.3. Termination benefits
In the event that Thierry Morin leaves the Company, either
by way of a decision of the Board of Directors, or at his own
initiative following a difference of opinion concerning the strategy
implemented by the Board further to a public tender offer, the
amount of his termination benefits will represent three times his
last annual compensation, excluding bonuses. Such termination
benefits will not be payable in the event of gross misconduct
(faute grave).
2. Internal control proceduresThis report was presented to the Audit Committee on February 12, 2007.
2.1. Definition and aims of internal control procedures
Internal control as defined by the Valeo Group is the process
implemented by Management and employees to provide
reasonable assurance regarding the achievement of objectives
in the following categories:
reliability of financial and management data;
compliance with laws and regulations;
safeguarding of assets;
effectiveness and efficiency of operations.
Valeo has adopted a definition of internal control in line with that
provided by the COSO (Committee Of Sponsoring Organization of
the Treadway Commission), the findings of which were published
in 1992 in the United States.
As with any control system, Valeo’s internal control procedures
can only provide reasonable assurance – and not an absolute
guarantee – that the Group’s objectives will be achieved and that
risks will be avoided. The objective of the system put in place by
Valeo is to reduce the probability of risks occurring.
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2.2. the components of Valeo’s internal control procedures
Valeo’s internal control procedures are based on the following five
interrelated components defined in the COSO framework.
Control Environment
The control environment sets the tone of an organization,
influencing the level of awareness of its people to be need for
controls.
Valeo’s decentralized structure enables it to respond swiftly and
locally to customer needs, which in turn enables the Group to
expand in its markets. Against this backdrop, the Group has set
up operating principles and rules applicable in all of its companies.
One example is the Code of Conduct, which is sent out to all of the
Group’s managers and sets out principles on how employees are
required to act and behave. This Code is available on the Intranet
and forms the basis of detailed procedures which must be applied
by all of the Group’s companies. It was updated in 2004 to include
new processes relating to human resources management.
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Risk Assessment
Risk assessment is the identification and analysis of risks that
may impact the objectives set by the Group, forming a basis for
determining how the risks should be managed. The Group’s main
risks are described in section 9 of the Management Report (“Risks
and uncertainties).
Control Activities
Control activities are the policies and procedures that help ensure
management directives are carried out. They occur throughout
the organization, at all levels and in all functions. In this context,
the Group’s Administrative and Financial Manual has been the
benchmark for Valeo’s financial and management operations
for over 15 years. The manual is used on a daily basis by all
operational staff and comprises two parts:
part one concerns the rules governing management and
internal control;
part two defines how the main items of the balance sheet and
statement of income should be measured and presented.
Every year, the Director and Financial Control Director of each
Division sign a letter of representation in which they undertake
to ensure compliance with the manual’s rules.
Specific rules and procedures have also been put in place by the
Group’s various corporate divisions, in line with the Administrative
and Financial Manual. These include:
the Constant Innovation Charter, which provides a strict definition
of the management principles applicable to development
projects;
marketing procedures and sales practices;
human resources procedures;
purchasing procedures, aimed at reducing the number of listed
suppliers in order to facilitate quality control;
the Risk Management Manual and implementation guides in
relation to security, safety and the environment, together with
the Insurance Manual. Valeo has undertaken to comply with
local regulations concerning safety and the environment at a
minimum and, in certain cases, to comply with even higher
standards;
legal procedures that set down the principles with which
the Group must comply. These mainly concern the laws and
regulations applicable in the countries where the Group operates
as well as respecting contractual obligations and protecting the
Group’s intellectual property.
Substantially all of the information concerning these rules and
procedures is accessible on the Group’s Intranet by the staff
concerned.
In terms of quality, Valeo has set its own benchmarks – Valeo
1000 and Valeo 5000. In addition, the QRQC (Quick Response
Quality Control) method ensures the prompt implementation
of corrective action, and the Lesson Learned Card (LLC) process
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enables the Group to monitor best practices and explore avenues
for improvement.
Valeo has launched a certification program for its manufacturing
sites in accordance with the ISO 14001 standard relating to
environmental management and the OHSAS 18001 standard
concerning occupational health and safety. At December 31,
2006, these two standards had been awarded to 125 and 71
sites respectively, out of a total of 129 sites.
Information and Communication
Pertinent information must be identified, captured and
communicated in a form and timeframe that enable all of the
Group’s people to carry out their responsibilities and perform the
controls required of them.
Group Financial Control is responsible for preparing the financial
statements of the Company and the Group, and reports to the
Chairman and Product Family Directors on this process. The budget
and monthly reporting procedure is a critical tool for Valeo in
managing its operations. Any variances can be identified, analyzed
and dealt with during the year, thereby increasing the reliability
of the interim and annual accounts closing process. The same
information system is used for the consolidation and reporting
processes, thus ensuring that the Group has constant control over
the preparation and processing of financial information.
The Group has put in place an integrated software application,
which is gradually being rolled out to all of its operating units.
As well as providing a structured framework, this software
application enables user profiles to be defined and access controls
to be monitored, enabling the Group to comply with regulations
concerning the segregation of tasks.
Monitoring internal control procedures
The Group’s General Management team oversees the internal
control system and delegates responsibility to the Financial
Control, and Risk, Insurance and Environment Departments as
well as to the individual Product Families for the management of
issues within their remit. The internal control system is audited by
the Valeo Internal Audit Department, whose task is to carry out
assignments within the Group to ensure that the procedures set
up function properly. Based on observations made during these
assignments, recommendations are put forward to the audited
operating units, which are subsequently required to implement
appropriate action plans. The Internal Audit team is also called
upon at regular intervals to carry out audits of performance
indicators at various manufacturing sites and Divisions, and to
coordinate the updates to the Group’s financial and management
procedures.
The application of Valeo’s quality standards is regularly checked
via “VAQ” (Valeo Assurance Quality) audits, and the environmental
and safety aspects are overseen by the Risk, Insurance and
Environment Department.
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2.3. Review of work carried out in previous years
Valeo carried out the following tasks at Group level in previous
years:
an analysis of the existing internal control procedures in light
of the five main components defined in the COSO Framework
(control environment, risk assessment, control activities,
information and communication, and monitoring);
a preliminary mapping of major risks and processes based on
interviews with the Group’s main operational and administrative
managers;
the identification of material accounts and their interaction
with the processes, as well as an inventory of existing internal
control procedures relating to the preparation of the financial
statements.
The Group has put in place a specific project designed to improve
internal control in relation to the reliability of financial information.
Over the long term, Valeo’s aim is to be able to assess the relevance
and correct implementation of its internal control procedures in
relation to the reliability of financial information.
In order to achieve this, 132 key control points have been identified
in relation to the seven processes set out below:
sales, receivables management and payments received;
procurement, payables management and payments made;
monitoring of assets;
monitoring of inventory;
payroll;
cash flow;
accounts closing policies.
Rules relating to documentation and testing – particularly
regarding the size of the sample used – have been defined to
ensure uniformity between the sites. The process was initially
implemented at a number of pilot sites in order to enable the
approach to be validated, forecasts of required resources to be
finetuned, and documentation and testing for all the sites to be
standardized. The approach was then rolled out to the Group’s
other operating units. A specific database of best internal control
practices has been created and posted on the Group’s Intranet. In
addition, Valeo has set up a new tool for reporting the findings
of its internal control self-assessment procedures, in order to
centralize documentation relating to the controls and tests
performed in connection with the French Financial Security Act
(LSF project). This tool, which is overseen by the Internal Audit
team, is also used by the Group’s financial controllers to monitor
in real time the action plans implemented to enhance the internal
control system.
In parallel, Valeo has set up a procedure aimed at reviewing the
user profiles and access controls for the SAP software, which has
been progressively rolled out to all the Group’s main sites. The
underlying aim of this process is to establish consistent internal
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control practices across all of the operating units. On the basis
of matrices showing incompatibilities for each of the processes,
optimized standard user profiles have been identified. SAP user
profiles and access controls have been deployed at 18 of the
Group’s most important sites.
The LSF project also included the “Corporate” functions, and the
internal control procedures for the Valeo Internal Bank (BIV) were
documented as part of this process.
The Group’s standards on quality, manufacturing, project
management and safety have been updated as part of the Valeo
5000 quality certificate.
2.4. Work carried out in 2006
During 2006 the Group continued its twin objectives of improving
internal control in relation to the relevance of financial information
and applying a self-assessment approach in all of its operating
units. The Internal Audit team continued to implement its quality
controls in relation to documentation and tests performed at the
operating units. The Group’s Statutory Auditors also carried out a
review of the work performed by certain divisions.
SAP user profiles and access controls have now been rolled out to
substantially all of the Group’s operating units, with accompanying
manuals and incompatibility matrices drawn up by Internal Audit
in conjunction with each division. During the year the Group also
carried out a centralized review of the SAP automatic and manual
controls, as well as management procedures for the corresponding
access rights. At the same time, it reviewed the security of its
information systems.
As part of its risk assessment process the Group updated and
enriched its risk mapping process. The risks concerned were
assessed in terms of their impact and how they are controlled
by the Group’s main operating and administrative managers.
The Group also identified the people responsible for controlling
its main risks, monitoring corrective action and performing
independent reviews of the coverage of the risks concerned. The
risk mapping process formed a major component of the work
undertaken to prepare the audit plan, which was presented to
the Audit Committee in November 2006.
2.5. Outlook for 2007 and 2008
A two-year audit plan (2007/2008) has been drawn up for the
Group’s main risks, based on the findings from the risk mapping
process and the work conducted by the Internal Audit team. The
plan covers both cross-business and technical risks.
The key controls, user documentation, test procedures and the
internal control reporting system will be reviewed and updated
in order to factor in changes in the Group and its accounting
policies.
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A specific review will be carried out on the access controls and
user profiles of sites that do not use SAP, and reporting tools and
monitoring procedures will be put in place. The central review
performed concerning the Group’s internal control procedures and
the security of the SAP application will be supplemented by a
review within each operating unit. This review will include an
analysis of how the centrally defined key controls are applied at
a local level and a verification of the manual controls performed
by local users.
A documentation plan will be drawn up for the “Corporate”
functions, together with a definition of the applicable key
controls and a test plan based on defined samples, notably for
specific holding company processes and for financial consolidation
procedures.
On a general level, the Group will pursue its ongoing efforts to
improve its internal control procedures, with the underpinning aim
of constantly adapting its management and control tools in line
with changes in the Group’s structure and its objectives.
These efforts are wholly supported by the Group’s General
Management team.
Thierry Morin
Chairman of the Board of Directors
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CORPORAtE GOVERnAnCE 4Composition of the Board of Directors at December 31, 2006
Composition of the Board of Directors at December 31, 2006
Name First appointedEnd of term of office
Main position held within the Company
Main position held outside the Company
Other directorships and positions held in all companies in 2006
Thierry Morin March 31, 2001
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Chairman and Chief Executive Officer
Chairman of Société de Participations Valeo, Valeo Bayen, Valeo Service, Valeo Finance, Valeo thermique Habitacle, Valeo España, S.A., Valeo SpA, Valeo Japan Co. Ltd, and Valeo (UK) LimitedLegal Manager of Valeo Management Services, Valeo Auto-Electric Beteiligungs GmbH, Valeo Germany Holding GmbH, Valeo Grundvermögen Verwaltung GmbH, and Valeo Holding Deutschland GmbHDirector of Valeo Électronique & Systèmes de Liaison, Valeo Service España S.A., Valeo Iluminacion, S.A., and Valeo termico, S.A.Director of CEDEP and Arkema
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Carlo De Benedetti(until July 13, 2006) July 4, 1986 July 13, 2006
Chairman of the Board of Directors of CIR SpA
Cofide-CIR GroupChairman of the Board of Directors of Cofide SpA and CIR SpADirector of Gruppo Editoriale L’Espresso SpA and Sogefi SpA
Outside the Cofide-CIR GroupChairman of the Board of Directors of CDB Web tech SpAChairman of the Supervisory Board of M&C Management & Capitali SpADirector of Pirelli SpA and Banca Intermobiliare SpA
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Daniel Camus May 17, 2006
General Shareholders’ Meeting to be called to approve the 2009 financial statements
Chief Operating Officer in charge of finance and international development in the EDF Group
EDF GroupChairman of the Board of Directors of EDF Energy (United Kingdom) and EDF InternationalDirector of Edison (Italy) and transalpina di Energia (Italy)Member of the Supervisory Board of EnBW (Germany)
Outside the EDF GroupMember of the Supervisory Board of Dalkia and Morphosys (Germany)
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Jérôme Contamine May 17, 2006
General Shareholders’ Meeting to be called to approve the 2009 financial statements
Senior Executive Vice-President of Veolia Environ-nement
Veolia GroupDirector of VE Services-Ré, Veolia transport, Veolia Propreté, Veolia Environmental Services Plc (United Kingdom), Veolia ES Holdings Plc (United Kingdom), and Veolia UK (United Kingdom)Member of the Supervisory Board of Veolia Eau and Dalkia FranceMember of Dalkia’s A and B Supervisory Boards
Outside the Veolia GroupChairman of Venao (United States)Director of Rhodia and Venac (United States)
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CORPORAtE GOVERnAnCE4 Composition of the Board of Directors at December 31, 2006
Name First appointedEnd of term of office
Main position held within the Company
Main position held outside the Company
Other directorships and positions held in all companies in 2006
Pierre-Alain De Smedt March 7, 2005
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Chairman of FEBIAC (the Belgian Federation of the Car and two-wheeler Industries) and director of various companies in Belgium
Director of Belgacom, C.n.P. (Compagnie nationale à Portefeuille/A. Frère Group), Deceuninck Plastics, and AlcopaMember of the Executive Committee and Director of FEBIAC (Belgian Federation of the Car and two-wheeler Industries)Member of the Management Committee of FEB (Belgian Business Federation)
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François Grappotte March 31, 2003
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Honorary Chairman of Legrand S.A.
Legrand GroupChairman of Legrand S.A.S., Lumina Management S.A.S., and Legrand S.A.Director and Chief Executive Officer of Legrand Holding S.A. and Lumina Parent (Luxembourg)Director of B. ticino (Italy) and Legrand Española (Spain)
Outside the Legrand GroupDirector of BnP ParibasMember of the Supervisory Board of MichelinMember of the Banque de France Consultative Committee, the Administrative Board of F.I.E.E.C. (Fédération des Industries Électriques, Électroniques et de Communication), the Administrative Board of Gimelec (Groupement des industries de l’équipement électrique, du contrôle-commande et des services associés), and the Board of Promotelec (Promotion de l’installation électrique dans les bâtiments neufs et anciens)
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Philippe Guédon March 31, 2003
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Managing Partner of Espace Développement
Yves-André Istel January 29, 1992
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Senior Advisor to Rothschild, Inc.
Director of Compagnie Financière Richemont AG, Imperial Sugar Company, and tiedemann trust Company
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2006 Reference document - VALEO 141
CORPORAtE GOVERnAnCE 4Composition of the Board of Directors at December 31, 2006
Name First appointedEnd of term of office
Main position held within the Company
Main position held outside the Company
Other directorships and positions held in all companies in 2006
Jean-Bernard Lafonta
December 7, 2001
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Chairman of the Management Board of Wendel Investis sement
Wendel GroupChairman of the Supervisory Board of Editis HoldingChairman of the Supervisory Board of Bureau VeritasMember of the Supervisory Board of Oranje-nassau Groep B.V.Director of Legrand Holding and Legrand S.A.
Outside the Wendel GroupChairman of the Board of Directors of Winvest S.A. (Luxembourg)Legal Manager of Granit (SARL), JBMn (Luxembourg), and Winvest Conseil (Luxembourg)
•
•
•
•
•
•
Alain Minc July 4, 1986
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Chairman of A.M. Conseil
Chairman of the Supervisory Board of Le MondeDirector of Fnac and Vinci
•
•
Véronique Morali March 31, 2003
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Director and Chief Operating Officer of Fimalac
Fimalac GroupSole Director of FCBS GIEMember of the Board of Fimalac Inc., Fitch Ratings, Inc., and Fitch Risk Management, Inc.
Outside the Fimalac GroupDirector of Eiffage, Club Méditerranée, and Algorithmics (Canada)
••
•
Erich Spitz June 24, 1987
General Shareholders’ Meeting to be called to approve the 2006 financial statements
Advisor to thales
Thales GroupChairman of thales Avionics LcdDirector of thales Corporate Ventures
Outside the Thales GroupChairman of the Supervisory Board of novaled and RiberMember of the Management Board of ERACorrespondent member of the Académie des SciencesMember of the Académie des technologiesHonorary Chairman of European Industrial Research Management Association (EIRMA)
••
•
••
••
2006 Reference document - VALEO142
CORPORAtE GOVERnAnCE4 Statutory Auditors’ Report
Statutory Auditors’ Report prepared in accordance with article L.225-235 of the French Commercial Code (Code de commerce) on the report of the Chairman of the Board of Directors on internal control procedures relating to the preparation and processing of financial and accounting information
This is a free translation into English of the statutory auditors’ report issued in the French language and is provided solely for the
convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French
law and professional auditing standards applicable in France.
Valeo 43, rue de Bayen 75017 Paris
To the Shareholders,
In our capacity as statutory auditors of Valeo, and in accordance with article L. 225-235 of the French Commercial Code (Code de commerce),
we hereby report to you on the report prepared by the Chairman of your Company in accordance with article L. 225-37 of the French
Commercial Code for the year ended December 31, 2006.
It is for the Chairman to give an account, in his report, notably of the conditions in which the duties of the Board of Directors are prepared
and organized and of the internal control procedures in place within the company.
It is our responsibility to report to you our observations on the information set out in the Chairman’s report on the internal control procedures
relating to the preparation and processing of financial and accounting information.
We performed our procedures in accordance with professional guidelines applicable in France. These require us to perform procedures to
assess the fairness of the information set out in the Chairman’s report on the internal control procedures relating to the preparation and
processing of financial and accounting information. These procedures notably consisted of:
obtaining an understanding of the objectives and general organization of internal control, as well as the internal control procedures
relating to the preparation and processing of financial and accounting information, as set out in the Chairman’s report;
obtaining an understanding of the work performed to support the information given in the report.
On the basis of these procedures, we have no matters to report in connection with the information given on the internal control procedures
relating to the preparation and processing of financial and accounting information, contained in the report of the Chairman of the Board,
prepared in accordance with the last paragraph of article L. 225-37 of the French Commercial Code.
Neuilly-sur-Seine and Paris, February 12, 2007
•
•
The Statutory Auditors
Salustro Reydel
Member of KPMG InternationalPricewaterhouseCoopers Audit
Jean-Pierre Crouzet Emmanuel Paret Serge Villepelet Jean-Christophe Georghiou
Year ended December 31, 2006
2006 Reference document - VALEO 143
CORPORAtE GOVERnAnCE 4
2006 Reference document - VALEO144
CORPORAtE GOVERnAnCE4
2006 Reference document - VALEO 145
5InfoRmatIon on the company and Its capItal
General information about the issuer P. 1461. Legal provisions and Company bylaws ..............................................................................................................146
2. Corporate governance structure ..........................................................................................................................148
3. Compensation paid to senior managers and members of the Board of Directors ......................................160
4. Related party transactions ...................................................................................................................................164
5. Governmental, legal and arbitration proceedings ...........................................................................................164
6. Insurance and risk coverage ................................................................................................................................164
Fees paid by the Group to the Auditors and members of their networks P. 166
General information about the Company’s capital P. 1671. Changes in Valeo’s share capital .........................................................................................................................167
2. Authorized, unissued capital ...............................................................................................................................168
3. Share equivalents ..................................................................................................................................................169
4. Other securities ......................................................................................................................................................169
Current ownership structure P. 1721. Changes in ownership structure since 2004......................................................................................................172
2. Disclosure thresholds ............................................................................................................................................174
3. Shareholder identification ....................................................................................................................................174
Market for the Company’s securities P. 1761. Share performance over 18 months ...................................................................................................................176
2. Share buyback program and cancellation of treasury shares .........................................................................176
3. Dividends ................................................................................................................................................................177
Investor relations P. 1781. Individual shareholder relations .........................................................................................................................178
2. Institutional shareholder relations ......................................................................................................................178
3. Ownership structure ..............................................................................................................................................179
5. Per share data ........................................................................................................................................................180
6. Share price from January 1, 2002 through December 31, 2006 ....................................................................180
7. Monthly trading volumes .....................................................................................................................................181
Information on subsidiaries and affiliates P. 181
Person responsible for the registration document P. 184Person responsible for the information provided in the registration document .............................................184
Declaration by the person responsible for the registration document..............................................................184
2006 Reference document - VALEO146
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
General information about the issuer
1. Legal provisions and Company bylaws
Corporate name and registered office
The name of the Company is Valeo. Its registered office is at 43,
rue Bayen, 75017 Paris, France (tel.: +33 (0) 1 40 55 20 20).
Legal form and governing law – Corporate governance
Valeo is a joint-stock company (“société anonyme”) with a Board
of Directors. It is governed by French law, notably the provisions
of Section II of the French Commercial Code and Decree 67-236
dated March 23, 1967.
With a view to increasing the transparency of information disclosed
to the public, the Company has set up a number of procedures to
ensure that it complies with best corporate governance practices.
Further information is provided on page 131 in the report of the
Chairman of the Board of Directors on the conditions for preparing
and organizing the work conducted by the Board and internal
control procedures.
Date of incorporation and term
The Company was incorporated on February 10, 1923 and its term
was extended for a further 99 years on February 10, 1972.
Corporate purpose
The Company’s corporate purpose is as follows (Article 3 of the
bylaws):
The research and development, manufacture, sale, trading or
supply of any products, equipment or services for industry and
business purposes which may be manufactured, finished or
developed by the Company or other Valeo Group companies or
which may interest their customers;
Operations of any nature – including industrial, commercial,
financial and investing activities, or acquisitions and divestments
– which are directly or indirectly related to the corporate purpose
or designed to facilitate the development or realization thereof.
Registration particulars
The Company is registered at the Paris Companies Registry under
number 552 030 967.
Fiscal year
The Company’s fiscal year covers a twelve-month period from
January 1 to December 31.
Consultation of documents
The Company’s press releases and annual registration documents
filed with the AMF (including historical financial information
relating to the Company and the Group), as well as any updates
thereto can be accessed on the Company’s website at www.valeo.
com. Copies are also available on request from the Company’s
head office.
The bylaws, minutes of Shareholders’ Meetings, Statutory Auditors’
reports and all other corporate documents can be consulted at
Valeo’s head office in accordance with the law and the Company’s
bylaws.
Auditors
Statutory Auditors
PricewaterhouseCoopers Audit SA, represented by Serge
Villepelet and Jean-Christophe Georghiou – 63, rue de Villiers,
92200 Neuilly-sur-Seine, France.
- Member of the Compagnie régionale des Commissaires aux
comptes de Versailles.
- First appointed on March 31, 2003.
- Current term of office began on April 5, 2004 and expires at the
close of the General Shareholders’ Meeting to be held to approve
the financial statements for the year ending December 31,
2009.
Salustro Reydel, Member of KPMG International, represented by
Jean-Pierre Crouzet and Emmanuel Paret – Immeuble Le Palatin
– 3, cours du Triangle, 92939 Paris La Défense Cedex, France.
- Member of the Compagnie régionale des Commissaires aux
comptes de Versailles.
•
•
2006 Reference document - VALEO 147
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
- First appointed on May 27, 1998.
- Current term of office began on April 5, 2004 and expires at the
close of the General Shareholders’ Meeting to be held to approve
the financial statements for the year ending December 31,
2009.
Alternate Statutory Auditors
Yves Nicolas – 63, rue de Villiers, 92200 Neuilly-sur-Seine,
France.
- Member of the Compagnie régionale des Commissaires aux
comptes de Versailles.
- First and current term of office began on April 5, 2004 and
expires at the close of the General Shareholders’ Meeting to be
held to approve the financial statements for the year ending
December 31, 2009.
Philippe Arnaud – 198, boulevard Malesherbes, 75017 Paris,
France.
- Member of the Compagnie régionale des Commissaires aux
comptes de Paris.
- First and current term of office began on April 5, 2004 and
expires at the close of the General Shareholders’ Meeting to be
held to approve the financial statements for the year ending
December 31, 2009.
Yves Nicolas and Philippe Arnaud were appointed as Alternate
Statutory Auditors on April 5, 2004. Philippe Arnaud replaced
Jean-Louis Mullenbach, who had been appointed by the General
Shareholders’ Meeting of May 27, 1998 for a six-year term.
Dividends
Each share entitles its holder to a proportion of income equal to
the proportion of capital represented by the share.
Distributable income is composed of net income for the year
less any prior year losses and amounts appropriated to the legal
reserve, plus any income carried forward. Subject to the provisions
of the law, shareholders in a General Meeting may decide to
distribute amounts taken from available reserves and/or retained
earnings. In this case, the related resolution approved by the
shareholders must clearly specify the reserve account from which
the distributed amounts are to be taken.
Shareholders may resolve to pay out a dividend only after
approving the financial statements for the year and noting
that amounts are available for distribution. Shareholders or the
Board of Directors set the applicable conditions for any dividend
payments.
The Board of Directors may decide to pay an interim dividend
before the financial statements are approved, subject to the
conditions set down by law.
At the General Meeting called to approve the financial statements,
shareholders may decide to offer a stock dividend alternative
•
•
•
representing all or part of the dividend, or interim dividend, as
provided for by law.
Dividends unclaimed after a period of five years from the date
they were made payable are paid to the French government.
Liquidation surpluses
Liquidation surpluses are allocated between the shareholders in
proportion to their interests in the Company’s capital.
General Shareholders’ Meetings
Ordinary and Extraordinary General Shareholders’ Meetings are
called and conduct business in accordance with the conditions
set down by law.
In accordance with Article 136 of Decree 67-236 dated March
23, 1967, as amended by Decree 2006-1566 of December 11,
2006, shareholders may participate in General Meetings subject
to submitting evidence of ownership of their shares. Share
ownership is evidenced by an entry in Valeo’s share register in the
name of the shareholder (or of the intermediary acting on their
behalf) or in the register of bearer shares held by an accredited
intermediary. Such entries must be recorded by 0 hours (Paris
time) on the third working day preceding the date of the Meeting.
In the case of bearer shares, the accredited intermediary shall
provide a participation certificate for the shareholders concerned,
which must be attached to the corresponding postal voting or
proxy form or to the admission card made out in the name of
the shareholder or in the name of the registered intermediary
representing the shareholder.
Subject to the above-mentioned conditions, all shareholders are
entitled to attend General Meetings provided they have settled
all capital calls related to their shares.
Shareholders who are unable to attend a meeting in person may
give proxy to their spouse or another shareholder or may cast
a postal vote. Alternatively, they may return the signed form of
proxy to the Company without naming a person to represent
them, in accordance with the applicable laws and regulations.
In compliance with the conditions set down by the applicable
law and regulations, shareholders may send proxy and postal
voting forms for General Meetings either in paper format or, if
authorized by the Board of Directors in the notice of meeting, in
electronic form.
Minutes of shareholders meetings are drawn up, and copies and
extracts thereof are certified and delivered, in accordance with
the law.
2006 Reference document - VALEO148
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
Double voting rights
Each shareholder has a number of votes corresponding to the
number of shares held or represented by proxy. However, since
the General Shareholders’ Meeting of June 16, 1992, article 23
of the Company’s bylaws provides that double voting rights are
attached to all fully-paid shares that have been registered in the
name of the same holder for at least four years. In the case of a
capital increase paid up by capitalizing reserves, income or share
premiums, the new registered shares allocated to a shareholder
in respect of existing shares with double voting rights will also
carry double voting rights from the date of issue. Double voting
rights are automatically stripped from any registered shares that
are converted into bearer shares or sold. However, registered
shares are not stripped of voting rights and the above four-year
qualifying period continues to run following the transfer of shares
included in the estate of a deceased shareholder, or in connection
with the settlement of the marital estate, or a donation inter vivos
to a spouse or relative in the direct line of succession. Double
voting rights may be removed at an Extraordinary Shareholders’
Meeting, subject to the approval of the shareholders entitled to
double voting rights, obtained at a special meeting held for the
purpose.
Changes in share capital and rights attached to shares
Any changes in the Company’s share capital or voting rights
attached to shares are subject to the applicable law as the
bylaws do not contain any specific provisions in relation to such
operations.
2. Corporate governance structure
2.1. executive Management
The Group’s Executive Management team includes the Chairman
and Chief Executive Officer, and Valeo’s Functional and Operational
Directors.
Chairman and Chief Executive Officer:
Thierry Morin
Term of office started on March 31, 2003 and expires at the
General Shareholders’ Meeting to be called to approve the 2006
financial statements.
At its meeting of March 31, 2003, Valeo’s Board of Directors
elected to combine the roles of Chairman of the Board of Directors
and Chief Executive Officer.
In his capacity as Chairman and Chief Executive Officer, Thierry
Morin has the broadest ranging powers to act in any circumstances
in the Company’s name. He exercises these powers within the
limits of the Company’s corporate purpose and subject to the
powers that the law specifically grants to Shareholders’ Meetings
or to the Board of Directors. Thierry Morin represents the Company
in its relations with third parties.
Functional Directors
Michel Boulain
Vice-President, Human Resources
Robert Charvier
Financial Controller, Industrial Products
Bernard Clapaud
Vice-President, Strategy
France Curis
Taxation Director
Jean-Luc Di Paola-Galloni
Chairman’s Delegate
Rémy Dumoulin
Investor Relations Director
André Gold
Technical Senior Vice-President
Martin Haub
Vice-President, Research & Development and Product
Marketing
2006 Reference document - VALEO 149
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
Kazuo Kawashima
Quality Director
Hans-Peter Kunze
Senior Vice-President, Sales and Business Development
Géric Lebedoff
General Counsel
Serge Le Berre
Industrial Vice-President
Vincent Marcel
Vice-President, Financial Affairs and Strategic Operations
Kate Philipps
Communications Director
Xavier Véret
Financial Control Director
Operational Directors
Luc Blériot
Chief Operating Officer
Antoine Doutriaux
Vice-President, Electronics & Connective Systems Product Family
Pierre Ensch
Vice-President, Engine Cooling Product Family
Michel Giannuzzi
Vice-President, Wiper Systems Product Family
Claude Leïchlé
Vice-President, Lighting Systems Product Family
Alain Marmugi
Vice-President, Climate Control Product Family
Christian Marsais
Vice-President, Compressors Product Family
Christophe Périllat-Piratoine
Vice-President, Switches & Detection Systems Product Family
Orazio Ragni
Vice-President, Electrical Systems Product Family
Michael Schwenzer
Vice-President, Transmissions Product Family
Michel Serre
Vice-President, Security Systems Product Family
Henri Trintignac
Vice-President, Engine Management Systems Product Family
Robert de la Serve
Senior Vice-President, Valeo Service Activity
Léonard de la Seiglière
Vice-President, Independent Aftermarket Branch
Dirk Strothmann
Vice-President, Original Equipment Spares Branch
2.2. Board of Directors
2.2.1. Composition of the Board of Directors
The following table includes the names of the members of Valeo’s
Board of Directors at the filing date of this registration document,
together with their age, the date on which they were first
appointed, and the start and end dates of their current terms of
office. Information is also provided on the main positions that they
hold outside the Company and other directorships and positions
that they have held in companies other than Valeo subsidiaries
during the past five years.
The current directorships and positions set out below are those
held at January 31, 2007 except for Helle Kristoffersen for whom
the information is based on the date she was appointed as a
Director by the Board to fill the seat left vacant by Véronique
Morali.
2006 Reference document - VALEO150
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
Name/ business address
Number of Valeo
shares held
First appointed
Start of term of office
End of term of office
Main position
held within the Company
Main positions held outside
the Company
Other directorships and positions held in companies other than Valeo subsidiaries during the past five years
Thierry MorinAged 55Valeo43, rue Bayen – 75017 ParisFrance
4,300 March 21, 2001
March 31, 2003
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Chairman and Chief executive
Officer
Management positions and directorships
in several Valeo Group subsidiaries (see p. 140)
Chairman of Valeo’s Management Board from May 9, 2001 to March 2003 when the Company changed its corporate governance structure to a company governed by a Board of DirectorsDirector of CeDeP* and Arkema*
•
•
Daniel CamusAged 55eDF – Direction Finance22-30 avenue de Wagram – 75382 ParisCedex 08France
200 May 17, 2006
May 17, 2006
General Shareholders’
Meeting to be called
to approve the 2009 financial
statements
Chief Operating Officer in charge of
finance and international
development in the eDF group
EDF GroupChairman of the Board of Directors of eDF energy (United Kingdom)* and eDF International*Director of edison (Italy)*, transalpina di energia (Italy)*, and eDF trading (United Kingdom)Member of the Supervisory Board of enBW (Germany)*
Outside the EDF GroupDirector of Aventis Pharma, Inc. (United States)Member of the Management Board of hoechst Marion Roussel AG (Germany) and Aventis Pharma AG (Germany)Chairman of the Supervisory Board of Aventis Pharma Gmbh (Germany)Member of the Supervisory Board of Dalkia*, Morphosys (Germany)*, and Aventis Pharma SA
•
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•
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•
* Current directorships and positions.
2006 Reference document - VALEO 151
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
Name/ business address
Number of Valeo
shares held
First appointed
Start of term of office
End of term of office
Main position
held within the Company
Main positions held outside
the Company
Other directorships and positions held in companies other than Valeo subsidiaries during the past five years
Jérôme ContamineAged 49Veolia environnement38, avenue Kléber – 75116 ParisFrance
2,000 May 17, 2006
May 17, 2006
General Shareholders’
Meeting to be called
to approve the 2009 financial
statements
Senior executive Vice-President
of Veolia environnement
Veolia GroupChairman of the Board of Directors of Ve Services-RéDirector of Veolia transport*, Veolia Propreté*, Ve Services-Ré, Veolia UK (United Kingdom), Veolia environmental Services Plc (United Kingdom)*, and Veolia eS holdings Plc (United Kingdom)*Member of the Managing Board of Vivendi environnementMember of the Supervisory Board of Veolia eau* and Dalkia France*Member of Dalkia’s A and B Supervisory Boards*
Outside the Veolia GroupPresident and Chairman of VenAO (United States)*Director of Rhodia*, VenAC (United States)*, Statoil (norway), FCC espagne, and Cementos Portland espagne
•
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Pierre-Alain De SmedtAged 63Résidence Château d’Issanhofstraat 31B –8400OostendeBelgium
200 March 7, 2005
March 7, 2005
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Chairman of FeBIAC
(the Belgian Federation of
the Car and two-wheeler
Industries) and director
of various companies in
Belgium
executive Vice-President of Renault SADirector of Belgacom*, C.n.P. (Compagnie nationale à Portefeuille/A. Frère Group)*, Deceuninck Plastics*, and Alcopa*Member of the executive Committee and Director of FeBIAC (the Belgian Federation of the Car and two-wheeler Industries)*Member of the Management Committee of FeB (the Belgian Business Federation)
•
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•
* Current directorships and positions.
2006 Reference document - VALEO152
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
Name/ business address
Number of Valeo
shares held
First appointed
Start of term of office
End of term of office
Main position
held within the Company
Main positions held outside
the Company
Other directorships and positions held in companies other than Valeo subsidiaries during the past five years
François GrappotteAged 71Legrand128, avenue du Maréchal de Lattre de tassigny –87045 Limoges CedexFrance
500 March 31, 2003
March 31, 2003
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
honorary Chairman of Legrand S.A.
Legrand GroupChairman and Chief executive Officer of Legrand S.A.Chairman of Legrand S.A.S., Lumina Management S.A.S., B. ticino (Italy), and FIMAF S.A.S.Chief executive Officer of Legrand holding S.A., FIMeP S.A., and Lumina Parent (Luxembourg)Director of Legrand holding S.A.*, Legrand S.A.*, Legrand France*, B. ticino (Italy), Bufer elektrik (turkey), eltas elektrik (turkey), Legrand española (Spain), Lumina Parent (Luxembourg), Pass & Seymour (United States), the Wiremold Company (United States), and FIMeP S.A.
Outside the Legrand GroupDirector of BnP Paribas* and France telecomMember of the Supervisory Board of Michelin* and Galeries LafayetteMember of the Banque de France Consultative Committee*, the Administrative Board of F.I.e.e.C. (Fédération des Industries electriques, electroniques et de Communication), the Administrative Board of Gimelec (Groupement des industries de l’équipement électrique, du contrôle-commande et des services associés), and the Board of Promotelec (Promotion de l’installation électrique dans les bâtiments neufs et anciens)
•
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•
* Current directorships and positions.
2006 Reference document - VALEO 153
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
Name/ business address
Number of Valeo
shares held
First appointed
Start of term of office
End of term of office
Main position
held within the Company
Main positions held outside
the Company
Other directorships and positions held in companies other than Valeo subsidiaries during the past five years
Philippe GuédonAged 73espace Développement 16, rue troyon 92316 SèvresFrance
100 March 31, 2003
March 31, 2003
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Managing Partner
of espace Développement
Chairman and Chief executive Officer of MatraChairman of the Supervisory Board of Matra Automobile
•
•
Yves-André IstelAged 71Rothschild, Inc.1251 Avenue of the Americas,51st floor new york, ny 10020, USA
500 January 29, 1992
March 31, 2003
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Senior Advisor to Rothschild,
Inc.
Rothschild GroupVice-Chairman of Rothschild, Inc.Director of Banque Rothschild & Cie
Outside the Rothschild Group
Director of Compagnie Financière Richemont AG*, Imperial Sugar Company*, Chalone Wine Group, and tiedemann trust CompanyMember of the Supervisory Board of Valeo
•
•
•
•
Helle Kristoffersen**Aged 43Alcatel-Lucent54 rue La Boétie75008 ParisFrance
- March 22, 2007
March 22, 2007
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Vice President, Corporate
Strategy Alcatel-Lucent
Vice President, economic Analysis of the Alcatel group
•
* Current directorships and positions.** Appointed to fill the seat left vacant by Véronique Morali.
2006 Reference document - VALEO154
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
Name/ business address
Number of Valeo
shares held
First appointed
Start of term of office
End of term of office
Main position
held within the Company
Main positions held outside
the Company
Other directorships and positions held in companies other than Valeo subsidiaries during the past five years
Jean-Bernard LafontaAged 45Wendel Investissement89, rue taitbout 75009 ParisFrance
100 December 7, 2001
March 31, 2003
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Chairman of the Management
Board of Wendel
Investissement
Wendel GroupChairman of the Supervisory Board of editis holding*Vice-Chairman and Chairman* of the Supervisory Board of Bureau VeritasChief executive Officer of Compagnie Générale d’Industrie et de Participations - CGIPexecutive Vice-President of Wendel InvestissementMember of the Supervisory Board of Oranje-nassau Groep B.V.*Director of Legrand holding*, Legrand S.A.*, Lumina Parent, Wendel Investissement, and Bureau VeritasPermanent representative of Sofu on the Supervisory Board of Bureau Veritas
Outside the Wendel GroupChairman of Banque DirecteChairman of the Board of Directors of Winvest S.A. (Luxembourg)*Legal Manager of Granit (SARL)*, JBMn (Luxembourg)*, and Winvest Conseil (Luxembourg)*Member of the General Management Committee of BnP ParibasMember of the Supervisory Board of ValeoDirector of Cap Gemini
•
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•
•
•
•
•
•
•
•
•
•
•* Current directorships and positions.
2006 Reference document - VALEO 155
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
Name/ business address
Number of Valeo
shares held
First appointed
Start of term of office
End of term of office
Main position
held within the Company
Main positions held outside
the Company
Other directorships and positions held in companies other than Valeo subsidiaries during the past five years
Alain MincAged 58A.M. Conseil10, avenue George V 75008 ParisFrance
500 July 4, 1986 March 31, 2003
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Chairman of A.M. Conseil
Chairman of the Supervisory Board of Le Monde*Chairman of Société des Lecteurs du MondeDirector of Fnac*, Vinci*, and yves Saint-Laurent S.A.Member of the Supervisory Board of ValeoMember of the Supervisory Board of Pinault-Printemps-Redoute
•
•
•
•
•
Erich SpitzAged 76thalesRD 128 –91767 Palaiseau CedexFrance
144 June 24, 1987
March 31, 2003
General Shareholders’
Meeting to be called
to approve the 2006 financial
statements
Advisor to thales
Thales GroupChairman of thales Avionics Lcd*Director of thales Corporate Ventures*
Outside the Thales GroupChairman of the Supervisory Board of novaled* and Riber*Member of the Management Board of eRAMember of the Supervisory Board of ValeoCorrespondent member of the Académie des Sciences*Member of the Académie des technologies*honorary Chairman of the european Industrial Research Management Association (eIRMA)*
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* Current directorships and positions.
2006 Reference document - VALEO156
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
thierry Morin joined the Valeo Group in 1989 as Finance Director
of the Clutches Branch. He then became Finance Director of the
Engine Cooling Branch and subsequently Group Financial Control
Director. In 1997, he was appointed Deputy Managing Director and
Director of Financial and Strategic Operations. On June 5, 2000 he
was appointed Senior Vice-President in charge of Finance, Strategic
Operations and Information Systems and became a member of the
Management Committee. He was named Chairman of the Board
of Directors on March 21, 2001, Chairman of the Management
Board on May 9, 2001 and on March 31, 2003 was appointed as
Valeo’s Chairman and Chief Executive Officer.
Before joining Valeo, Thierry Morin was Assistant Director of the
ISD Division at Thomson Consumer Electronics in Los Angeles. He
also held various financial positions during ten years spent with
Schlumberger.
Thierry Morin has a Masters degree in Management from the
University of Paris-IX Dauphine.
Daniel Camus is Chief Operating Officer in charge of finance and
international development in the EDF group. He joined the EDF
group in 2002 after working in the chemicals and pharmaceuticals
industry for 25 years as part of the Hoechst-Aventis group in
Germany, the United States, Canada and France. He is a graduate
of the Paris Political Studies Institute (Institut d’Études Politiques de
Paris) and holds a doctorate in Economics. He is also an Associate
Professor in Management Sciences.
Jérôme Contamine joined Veolia in 2000 as Executive Vice-
President, Finance, before becoming Executive Vice President
responsible for cross-functional activities in 2002 and Senior
Executive Vice-President in 2003.
Between 1988 and 2000, he held several posts within the Elf
Group including Financing and Treasury Director (1991 to 1994),
Assistant Director, Europe and the USA for the Exploration and
Production Division, CEO of Elf Norway (1995-1998), and Head
of Continental European and Central Asian Operations for the
Exploration and Production Division (2000).
Jérôme Contamine graduated from École Polytechnique and École
Nationale d’Administration and is a special adviser to the French
Audit Commission (Cour des Comptes).
Pierre-Alain De Smedt is qualified as a Sales Engineer and
holds a Commercial and Financial Sciences degree from the
Université Libre de Bruxelles in Belgium. He began his career
in 1966 in the IT Department of Solvay before joining Bosch
Belgium in 1971 as Financial Director responsible for Purchasing,
Logistics, Organization and IT. He was appointed to the same
position within the Volkswagen group in 1973 and in 1985 was
nominated Chairman of the Board of Directors of the Volkswagen
subsidiary responsible for logistics, purchasing, organization and IT.
In 1988, he became a Director of Tractebel and Chairman of the
Executive Committee of the electricity companies Ebes, Intercom
and Unerg.
In 1991, Pierre-Alain De Smedt was appointed Managing Director
of Autolatina – the leading Latin American private company and a
joint venture between Volkswagen and Ford – and in 1997 he was
named Chairman of Seat, a subsidiary of the Volkswagen group.
In 1999, he joined Renault as Executive Vice-President, Industry
and Technology and is currently a member of the Executive
Committee of the Renault Group and of the Renault/Nissan
Alliance Board.
In 2006, he also took on the role of Chairman of the FEBIAC (the
Belgian Federation of the Car and Two-wheeler Industries).
François Grappotte is Honorary Chairman of Legrand S.A.
He joined Legrand S.A. in 1983 and went on to become Chief
Executive Officer and subsequently Chairman and CEO, a position
he held until December 31, 2003. He then served as Chairman
of the company until March 17, 2006.
After seven years at the French Ministry of Industry and Ministry
of Finance and the Economy from 1963 through 1970, François
Grappotte joined Rothschild Bank as a Deputy Director. He was
subsequently appointed Assistant Director and then Director
(1970-1972) before taking up the position of General Secretary
at La Compagnie Electromécanique (CEM) in 1973. He went on
to become the Chief Executive Officer of CEM, a position which
he held until 1983.
François Grappotte has a degree in law and post-graduate diplomas
in political economics and economic and financial sciences from
the Law Faculty of the University of Paris. He also graduated from
the Paris Political Studies Institute (Institut d’Études Politiques de
Paris) and École Nationale d’Administration (ENA).
Philippe Guédon has been Managing Partner of Espace
Développement since 2003. He joined Simca in 1956 as an
After-Sales Service Engineer and went on to become a Research
Engineer until 1965. He then joined Matra, where he also held
the post of Research Engineer, and in 1983 took on the position of
Technical Director. In that year he was appointed as Chairman and
Chief Executive Officer of Matra – a post he occupied until 2003.
Philippe Guédon was the designer of the Matra 530, the Bagheera,
the Rancho, the Murena, the Espace and the Avantime.
He graduated as an engineer from the Arts et Métiers school in
Angers, France in 1956.
yves-André Istel is currently Senior Advisor to Rothschild Inc. in
New York.
From 1964 to 1983 he was a Partner and Director of Kuhn, Loeb
Inc. and subsequently Lehman Bros. He then held the position of
Co-Chairman of First Boston International between 1984 and 1988
before taking up the post of Chairman of International Wasserstein
Perella between 1988 and 1992. He was then appointed as Vice-
Chairman of Rothschild Inc., a position he held from 1993 to
2002.
Yves-André Istel graduated from the University of Princeton in
1957.
2006 Reference document - VALEO 157
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
Jean-Bernard Lafonta is currently the Chairman of the
Management Board of Wendel Investissement.
He began his career as an engineer and held various public
functions between 1986 and 1992, including within Ministerial
cabinets. In 1993 he joined the M&A team of Lazard Bank as
Deputy Managing Director in Paris. In 1996 he joined BNP as
Strategy Director working with Michel Pébéreau who in the same
year requested him to take responsibility for all of the Bank’s capital
markets activities. In 2000, he became a member of BNP Paribas’
General Management Committee and was appointed Chairman of
Banque Directe before joining the Wendel Investissement Group
as Director and Executive Vice-President in September 2001.
Jean-Bernard Lafonta graduated from École Polytechnique and has
an engineering degree from Corps des Mines de Paris.
Alain Minc has been the Chairman of A.M. Conseil since April
1991.
Earlier in his career, he held the following positions: Finance
Director of Compagnie de Saint-Gobain (1979-1986); Chairman
of the Orient-Gestion SICAV fund (1984-1985); Chairman of
Sofimatique (1979-1983); Chairman and CEO of Air Industrie (1982-
1984), then Director, Vice-Chairman and CEO and subsequently
Chairman of Cochery Bourdin et Chaussé (1985-1986); Chairman
of La Société des Lecteurs du Monde (1985-2003); CEO of Société
Générale d’Entreprises (1985-1986); Director and CEO (1986-
1989) and subsequently Vice-Chairman and CEO (1989) of Cerus;
Vice-Chairman and CEO of Dumenil Leblé S.A., renamed Cerus
(1989-1991).
Alain Minc graduated as a civil engineer (Ingénieur Civil des
Mines) and has post-graduate diplomas from the Paris Political
Institute (Institut d’Études Politiques de Paris) – Major 1971
– and École Nationale d’Administration (ENA) (Major – Economic
Administration – Léon Blum class 1975).
erich Spitz joined Compagnie Générale de TSF in 1958 (since
renamed Thomson-CSF). He began his career with the company
as Director of the Central Research Laboratory before becoming
Research and Development Director of the Thomson Group from
1983 to 1994.
Eric Spitz graduated from Prague Polytechnic University and holds
a doctorate in science.
On March 22, 2007 helle Kristoffersen was appointed by the
Board to fill the seat left vacant by Véronique Morali who has
stepped down. Shareholders are expected to be asked to ratify
Helle Kristoffersen’s appointment at the next General Shareholders’
Meeting.
Helle Kristoffersen is Vice President of Corporate Strategy and
Secretary of the Strategy Committee of the Alcatel-Lucent group.
She joined what was previously the Alcatel group in 1994 as Head
of Financial Operations.
Between 1989 and 1991 she worked as an analyst in the mergers
and acquisitions department at Banque Lazard & Cie before joining
the Bolloré group where she held the following positions: Deputy
Financial Director responsible for mergers and acquisitions, Head
of Operational Strategy for the Maritime Division and Head of
Mergers and Acquisitions reporting to the Chairman and CEO.
Helle Kristoffersen is a graduate of Ecole Normale Supérieure
and of Ecole Nationale de la Statistique et de l’Administration
Economique (ENSAE). She also holds a Masters degree in
Econometrics from Sorbonne University Paris I.
2.2.2. Declarations concerning members of the Board of Directors
As far as the Company is aware, there are no family relationships
between the members of the Board of Directors.
As far as the Company is aware, in the past five years, (i) none
of the members of the Board of Directors has received any
convictions for fraudulent offences, (ii) none of the members of
the Board of Directors has been involved in any bankruptcies,
receiverships or liquidations, (iii) no official public incriminations
and/or sanctions have been issued against any member of the
Board of Directors by statutory or regulatory authorities (including
designated professional bodies), and (iv) none of the members
of the Board of Directors has been disqualified by a court of law
from acting as a member of the administrative, management or
supervisory bodies of an issuer or from acting in the management
or conduct of the affairs of any issuer.
To the best of the Company’s knowledge there are no potential
conflicts of interest between the duties of the members of the
Board of Directors of Valeo and their private interests and/or any
other duties.
As far as the Company is aware, none of the members of the
Board of Directors has agreed to any restrictions concerning the
disposal of their holdings in the Company’s securities within a
certain period of time, other than the restrictions set down by law
or the Company’s bylaws or in the Company’s stock option, stock
grant or employee share ownership plans, under which certain
members of the Board of Directors have acquired shares.
To the best of the Company’s knowledge there are no
arrangements or understandings with major shareholders,
customers or suppliers pursuant to which any member of the
Board of Directors was selected as a Director or member of Valeo’s
Executive Management.
2.2.3. Service contracts between the members of the Board of Directors and the Company or any of its subsidiaries
No service contracts have been entered into between the
members of the Board of Directors and the Company or any
of its subsidiaries providing for benefits upon termination of
employment.
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InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
2.3. Organization and operation of the Board of Directors
On March 31, 2003, the Company’s Board of Directors adopted a
set of Internal Rules of Operation in line with the recommendations
set out in the Bouton report on promoting better corporate
governance in French listed companies.
These internal rules set out the Board’s modus operandi and the
procedures to be followed when appointing Board members.
They are applied alongside the provisions set down by law, the
applicable regulations and the Company’s bylaws.
2.3.1. Composition of the Board and appointment of Directors
The Company’s bylaws provide that the Board of Directors must be
made up of at least three and no more than eighteen members
(subject to any amendments in line with the applicable law). The
Board of Directors currently has eleven members. There are no
Directors elected by employees or any non-voting Directors.
Directors are appointed by shareholders in a General Meeting
on the recommendation of the Board of Directors, which in turn
receives proposals from the Nomination and Remuneration
Committee.
Members of the Board are appointed for renewable four-year
terms which expire at the close of the Annual Shareholders’
Meeting called to approve the accounts for the year in which
their terms expire. Where one or more seats on the Board
become vacant due to the death or resignation of any member
or members, the Board of Directors may appoint new members
on a temporary basis until the next Shareholders’ Meeting, in
accordance with the applicable legislation. The term of office of
the Chairman may not exceed his term of office as a Director.
The proportion of Board members over the age of 70 may
not exceed one third. This age limit provision applies both to
individuals and to permanent representatives of legal entities
holding directorships. The Chairman’s term of office expires at
the latest at the close of the General Shareholders’ Meeting held
to approve the accounts for the year in which he reaches his
seventieth birthday.
Directors may be removed from office by shareholders in a
General Meeting at any time.
2.3.2. Independent Directors
In accordance with its Internal Rules of Operation, each year prior
to the publication of the Annual Report, the Board of Directors
assesses the position of each Director with respect to the
independence criteria set out in the Internal Rules of Operation,
in line with the recommendations of the Bouton report. Under
these rules, independent Directors are those who do not have
any relations whatsoever with the Company, the Group or the
Group’s management that may compromise his or her ability to
exercise freedom of judgment.
In particular, independence is presumed to exist when a
Director:
(i) is not currently and has not been in the past five years, an
employee or a corporate officer of Valeo, or an employee or
Director of a company consolidated by Valeo;
(ii) is not a corporate officer in a company in which the
Company directly or indirectly holds a directorship, or in which
an employee appointed in that role or a corporate officer of
the Company (current or having been so in the past five years)
holds a directorship;
(iii) is not a customer, supplier, investment banker or commercial
banker which is material for the Company or the Group, or for
which the Company or Group represents a material proportion
of the entity’s activity;
(iv) does not have any close family ties with a corporate officer
of the Company;
(v) has not been an auditor of the Company in the past five
years;
(vi) has not been a Director of the Company for more than
twelve years on the date on which they were appointed to
their current term of office.
For Directors holding at least 10% of the Company’s capital or
voting rights, or representing a legal entity that holds such a stake,
the classification as independent takes into account the Company’s
ownership structure and any potential conflict of interests.
In application of these criteria, at its meeting of November 20,
2006, the Board of Directors noted that:
one Director holds the positions of Chairman and Chief Executive
Officer of the Company: Thierry Morin;
three Directors have been members of the Board of Directors
(and previously the Supervisory Board) for over twelve years:
Alain Minc, Yves-André Istel and Erich Spitz;
seven directors are independent based on the criteria set out in
the Board’s Internal Rules of Operation: Daniel Camus, Jérôme
Contamine, Pierre-Alain De Smedt, François Grappotte, Philippe
Guédon, Jean-Bernard Lafonta and Véronique Morali.
2.3.3. Roles and responsibilities of the Board of Directors
The Board of Directors represents all shareholders. It determines
the Company’s overall business strategies and oversees their
implementation. Subject to the powers expressly reserved for
Shareholders’ Meetings and within the limits of the corporate
purpose, the Board of Directors deals with any issues relating
to the efficient functioning of the Company and makes any and
all decisions relating thereto. The Board devotes one meeting
per year to reviewing the Group’s overall industrial and financial
strategies.
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2006 Reference document - VALEO 159
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
The Chairman convenes meetings of the Board as often as
required in the general interest of the Company and at least
once a quarter. The dates for the quarterly meetings are issued at
the beginning of each fiscal year at the latest. In 2006, the Board
of Directors held ten meetings with a 92% average attendance
rate (in person or by proxy).
Board meetings are chaired by the Chairman of the Board or, in
his absence, by any Director who has been temporarily authorized
to chair Board meetings, a Vice-Chairman or a Director appointed
for the role by the Board of Directors.
Board meetings are only validly constituted if at least half of the
members are present or deemed present (in accordance with the
law and the Company’s bylaws), excluding members attending
by proxy. Decisions are taken based on a majority vote of the
members present, deemed present, or represented, in accordance
with the law and the Company’s bylaws. Each member who is
present or represented has one vote and each member present
may only represent one other member. In the case of a split
decision, the Chairman has the casting vote.
Minutes are drawn up after each Board Meeting, which are signed
by the Chairman and one other Director.
In accordance with its Internal Rules of Operation, the Board of
Directors includes an assessment of Board performance on the
agenda of one meeting per year. In 2006, this assessment was
performed with the assistance of an external firm during the
last quarter of the year. A detailed questionnaire was sent to
all Directors concerning their assessment of the way in which
the Board operates and suggestions for improvement. The topics
covered included the operation and composition of the Board,
Directors’ access to information, the choice of issues discussed,
the quality of the discussions, and the general running of the
Board Committees. The Directors’ replies were analyzed and the
findings presented at the meetings of the Board held on February
12, 2007 and March 22, 2007. The results of this assessment are
provided on page 131 in the report of the Chairman of the Board
of Directors on the conditions for preparing and organizing the
work conducted by the Board and internal control procedures.
2.3.4. Directors’ rights and duties - Compensation
The Board’s Internal Rules of Operation impose certain duties on
Directors in order to ensure that they are aware of the rules
and regulations applicable to them, that conflicts of interest are
avoided, that they dedicate the necessary time and attention to
their function and that they respect the applicable law relating
to multiple directorships.
Members of the Board of Directors are also responsible for
ensuring that they have all the necessary information to carry
out their duties. To this end, the Chairman provides Directors
with the data and documents required in order for them to fully
perform their duties.
As compensation for the work carried out by Directors,
shareholders in a General Meeting may grant an annual fixed
amount of attendance fees which may be freely allocated
by the Board among its members. The Board may also grant
Directors exceptional compensation for specific assignments or
tasks entrusted to them. The Board of Directors is responsible for
setting the Chairman’s compensation.
Article 14 of the Company’s bylaws stipulates that each Director
must hold at least 100 Valeo registered shares throughout his or
her term of office.
On accepting their position, each member of the Board of Directors
and the Group’s Executive Management team agrees to a Code
of Conduct in relation to transactions involving the Company’s
securities. This Code sets out the legal and regulatory provisions
applicable to them in relation to declaring transactions concerning
those securities. It also specifies the periods during which
members of the Board and the Group’s Executive Management
team are prohibited from trading in the Company’s securities and
recalls the fact that they may not carry out any such transactions
based on insider information.
2.4. Board Committees
The Board of Directors has set up committees in order to
enhance its operation and to provide assistance with preparing
its decisions.
The following standing committees were originally created:
the Audit Committee, the Strategy Committee, the Nomination
Committee and the Remuneration Committee. Each of the Board
Committees is governed by a set of internal rules approved by
the Board of Directors.
At the Board meeting of December 14, 2006, the Nomination
Committee was merged with the Remuneration Committee
and the Strategy Committee was dissolved. The Board therefore
currently has two standing committees – the Audit Committee
and the Nomination and Remuneration Committee.
Further details relating to the composition and running of these
standing committees are provided on page 131 in the report
of the Chairman of the Board of Directors on the preparation
and organization of the Board’s work and internal control
procedures.
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InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
3. Compensation paid to senior managers and members of the Board of Directors
The Nomination and Remuneration Committee plays a central
role in determining the compensation paid to Valeo’s corporate
officers and members of the Board of Directors. It reviews
the compensation paid to corporate officers and makes
recommendations, especially in relation to the variable portion.
The Committee defines the rules used to set this variable portion,
taking into account the officers’ performance over the year and
the medium-term strategy of the Company and the Group. It
is also responsible for ensuring that these rules are applied. In
addition, the Nomination and Remuneration Committee provides
recommendations to the Board of Directors on the Group’s general
stock option policy and specific stock option grants, as well as
on pensions granted to corporate officers and all other forms of
benefits.
The Nomination and Remuneration Committee’s tasks also
encompass recommending to the Board an overall amount
of attendance fees payable to Directors to be submitted to
shareholders for approval, as well as rules relating to the allocation
of these fees and the individual amounts payable to each Director
based on their attendance record at meetings of the Board, and
where appropriate, Board Committees.
Finally, the Nomination and Remuneration Committee is informed
of the compensation policy applicable to the senior managers of
the Company and other Group companies who are not corporate
officers.
3.1. executive Management
3.1.1. Compensation paid to the Chairman and Chief Executive Officer
The Board of Directors sets the compensation paid by Valeo to
Thierry Morin, the Company’s Chairman and Chief Executive Officer,
based on recommendations provided by the Nomination and
Remuneration Committee.
Fixed compensation and benefits in kind
The total gross fixed compensation paid to Thierry Morin in 2006
came to 1,519,538 euros, including 19,251 euros in benefits
in kind which break down as follows: 12,401 euros for the
use of a company car and 6,850 euros in contributions to the
business leaders social welfare fund (Garantie Sociale des Chefs
d’Entreprise).
Variable compensation
Thierry Morin did not receive any variable compensation in
2006.
Attendance fees paid by the Company
In 2006, Thierry Morin received 35,000 euros in attendance fees
in his capacity as a Director of Valeo.
Compensation paid by controlled companies
Thierry Morin received total gross compensation of 120,883 euros
from companies controlled by Valeo (as defined in article L. 233-
16 of the French Commercial Code). This total was made up of
45,750 euros in attendance fees and 75,133 euros in contributions
to a pension fund.
Thierry Morin did not receive any benefits in kind in 2006 from
companies controlled by Valeo.
Stock options and shares awarded free of consideration
(share grants)
In view of the prohibited periods set down by French stock
exchange regulations, the Board of Directors did not allocate
any stock options or share grants to Thierry Morin during 2005.
This allocation was deferred until March 2006, and comprised
150,000 stock options and 50,000 shares free of consideration,
in accordance with the following terms and conditions:
the purchase price of the shares to be issued on exercise of
the options is set at 33.75 euros. Half of the options granted
may be exercised as from March 3, 2008 and all of the options
may be exercised as from March 3, 2009. The shares obtained
on exercise of the options may not be sold before March 3,
2010. If the options are not exercised they will be forfeited on
March 2, 2014;
the vesting date for the shares awarded free of consideration
was set by the Board of Directors as June 3, 2008 subject to
the following conditions: (i) Thierry Morin must still hold an
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2006 Reference document - VALEO 161
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
employment contract or a corporate officer’s position within
the Valeo Group at June 3, 2008, and (ii) the achievement
of certain performance criteria concerning operating margin
targets for 2006 and 2007 (applicable to the vesting of 30,000
of the total shares granted).
For the same reasons as those described above, at its March
7, 2007 meeting, the Board of Directors granted Thierry Morin
200,000 stock options in relation to 2006, in accordance with the
following terms and conditions:
the purchase price of the shares to be issued on exercise of
the options is set at 36.97 euros. Half of the options granted
may be exercised as from March 7, 2009 and all of the options
may be exercised as from March 7, 2010. The shares obtained
on exercise of the options may not be sold before March 7,
•
2011. If the options are not exercised they will be forfeited on
March 6, 2015;
in accordance with French Act no. 2006-1770 issued on
December 30, 2006 relating to the promotion of employee
profit-sharing and share ownership, if Thierry Morin exercises
the stock options granted to him he will be required to hold, in
registered form, at least 75% of the number of shares issued on
exercise of said options until such time as he leaves his position.
The calculation of this 75% holding will be made after the sale
of the number of shares necessary to finance the exercise of the
options and pay the related taxes and transaction costs.
In 2006, Thierry Morin did not exercise any options granted in
previous years.
•
Compensation paid to the Chairman and Chief executive Officer over the last three years
The table below provides a breakdown of the total gross compensation and benefits paid to Thierry Morin over the last three years.
(In euros)
Compensation paid by the Company
Benefits in kind
Compensation paid by
controlled companies
Total gross compensation
and benefitsFixed portionVariable portion
Attendance fees
2004 1,272,760 150,000 35,000 17,892 116,922 1,592,574
2005 1,284,000 0 35,000 18,395 118,758 1,456,153
2006 1,519,538 0 35,000 19,251 120,883 1,694,672
Pension scheme
Thierry Morin is still a member of the supplementary pension
scheme set up for members of the former Management Board,
as approved by the Supervisory Board on October 17, 2002. This
system is designed to top up existing pension benefits (statutory
pension, ARRCO, AGIRC, etc.) to enable beneficiaries to acquire
benefits representing 2% of their final salary per year of service
with the Group. The total amount of pension benefits may not
exceed 60% of a beneficiary’s final salary and the scheme will
only apply to beneficiaries who have a minimum of 15 years’
service in the Valeo Group when they retire, and for whom
Valeo or one of its subsidiaries was their last employer at their
retirement date.
termination benefits
In the event that Thierry Morin leaves the Company, either by
way of a decision of the Board of Directors, or at his own initiative
in the event of a difference of opinion concerning the strategy
implemented by the Board further to a public tender offer, the
amount of his termination benefits will correspond to three times
his last annual compensation, excluding bonuses. Such termination
benefits will not be payable in the event of misconduct.
3.1.2. Total compensation paid to other Group executive managers
The total gross compensation paid to Valeo’s Functional and
Operational Directors in 2006 amounted to 10,820,943 euros,
compared with 10,438,062 euros in 2005 and 10,895,652 euros
in 2004. Of the 2006 total, 9,240,726 euros corresponded to
fixed compensation, 1,199,687 euros to variable compensation,
240,606 euros to benefits in kind, 45,735 euros to attendance
fees, and 94,189 euros to profit-sharing.
During the year, the Group’s Functional and Operating Directors
(excluding corporate officers) also received a total of 288,000
stock options.
3.2. Members of the Board of Directors
Directors receive attendance fees, which are paid every six
months. These fees are not, however, paid to Directors if their
average attendance at Board Meetings, or where applicable, at
Committee meetings is lower than 50% during the six months
in question.
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InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
The General Shareholders’ Meeting of March 31, 2003 set the
aggregate annual total of attendance fees paid to Directors at
450,000 euros, an amount which has remained unchanged since
that date.
In 2006, attendance fees were allocated as follows by the Board
of Directors: 20,000 euros to each Director and an additional
15,000 euros for each Director who is a member of one of the
Board Committees.
Total attendance fees paid by the Company to members of the Board of Directors amounted to 305,000 euros in 2006 (301,250 euros in
2005), breaking down as follows:
Amount in euros 2006 2005 2004
thierry Morin 35,000 35,000 35,000
Daniel Camus 10,000 - -
Jérôme Contamine 10,000 - -
Pierre-Alain De Smedt 35,000 18,750 -
François Grappotte 35,000 35,000 35,000
Philippe Guédon 35,000 35,000 35,000
erich Spitz 27,500 35,000 35,000
Alain Minc 35,000 35,000 35,000
Véronique Morali 27,500 35,000 10,000
Jean-Bernard Lafonta 35,000 35,000 35,000
yves-André Istel 20,000 27,500 25,000
Stock options granted to and exercised by members of the Board of Directors
Number of options granted/
exercised
Weighted average exercise
price Expiry dateDate of Board
MeetingOptions granted in 2006 by Valeo* and/or other Group companies
150,000 stock purchase options** €33.75 March 2, 2014 March 3, 2006
Options exercised in 2006 none
* No Group company other than Valeo issued stock options during the year.** In view of the prohibited periods under the applicable French stock exchange regulations, in 2005 the Board of Directors did not grant any stock options to Thierry
Morin in relation to that year. The 150,000 stock options with an exercise price of 33.75 euros set out in the table above were therefore allocated on March 3, 2006
in relation to 2005.
For the same reasons, at its March 7, 2007 meeting the Board of Directors granted Thierry Morin 200,000 stock purchase options for 2006 (see page 161).
Apart from Thierry Morin (see pages 160 and 161) and Yves- André
Istel, no other compensation or benefits were paid to members of
the Board of Directors during the year. Other than Thierry Morin,
no Directors hold stock options or were awarded share grants
during the year.
3.3. Information concerning stock options and share grants
3.3.1. Stock options granted and exercised during the year
No stock options were granted to Directors in 2006 apart from to Thierry Morin. In addition, no Board members exercised any stock options
during the year.
2006 Reference document - VALEO 163
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
Stock options granted to and exercised by the ten employees with the highest number of options
Number of options granted/
exercised
Weighted average exercise
price Expiry dateDate of Board
meeting
Options granted in 2006 by Valeo* and/or other Group companies to the ten employees of Valeo or other Group companies receiving the highest number of options
175,000 ** stock purchase
options (16 beneficiaries***) €32.63 nov. 19, 2014 nov. 20, 2006
Options exercised in 2006 by the ten employees of Valeo or other Group companies exercising the highest number of options
26,500 stock subscription
options €27.31 - -
* No Group companies other than Valeo issued stock options during the year.** Out of a total of 1,309,250 stock options allocated.*** Thirteen beneficiaries received the same number of shares in second position.
3.3.2. Share grants
No share grants were made to members of the Board of Directors other than Thierry Morin in 2006.
Share grants to members of the Board of Directors
Number of shares received
free of consideration
Date of Board of Directors’ meeting
Shares granted free of consideration in 2006 by Valeo and/or other Group companies 50,000* March 3, 2006* In view of the prohibited periods under the applicable stock exchange regulations, in 2005 the Board of Directors did not grant any shares free of consideration to
Thierry Morin relating to that year. The 50,000 shares concerned were therefore granted on March 3, 2006. The vesting date for these shares was set by the Board of
Directors as June 3, 2008 subject to the following conditions: (i) Thierry Morin must still hold an employment contract or a corporate officer’s position within the Valeo
Group at that date, and (ii) the achievement of performance criteria concerning operating margin targets for 2006 and 2007 applicable to the vesting of 30,000 of the
total shares granted.
In accordance with the authorization granted in the fifteenth
resolution of the May 3, 2005 General Shareholders’ Meeting,
on November 20, 2006 the Board of Directors granted 100,000
Valeo shares free of consideration to a restricted number of high-
potential managers, excluding corporate officers.
Share grants to the ten employees receiving the highest number of shares without consideration
Number of shares received
free of consideration
Date of Board of Directors’ meeting
Shares granted free of consideration in 2006 to the ten employees of Valeo or related entities as defined in article L. 225-197-2 of the French Commercial Code, who received the highest number of such shares 18,500 nov. 20, 2006
The vesting date for these shares was set by the Board of Directors
as November 20, 2009 (i.e. three years from the Board meeting
at which the share grants were decided), provided that the
beneficiaries hold an employment contract or a corporate officer’s
position within the Valeo Group at that date.
Provided the above-mentioned condition is met, the beneficiaries
will become the owners of the shares granted free of consideration
on the vesting date and will have the same rights in relation
thereto as all other shareholders. They may not, however, sell
the shares received for a period of two years as from the vesting
date.
In addition, at its March 7, 2007 meeting, the Board of Directors
granted 100,000 shares free of consideration to some one
hundred high-potential managers (excluding corporate officers),
in accordance with the same terms and conditions as above. The
vesting date for these shares was set as March 7, 2010.
2006 Reference document - VALEO164
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the issuer
5. Governmental, legal and arbitration proceedings
To the best of Valeo’s knowledge, during the past twelve months
there were no governmental, legal or arbitration proceedings,
including proceedings in process, pending or expected, that may
have, or have had in the recent past, a significant impact on the
financial position or profitability of the Company or the Group.
6. Insurance and risk coverage
The Group’s insurance strategy is strongly rooted in risk prevention
and protection, and is aimed at covering the major risks to which
Valeo is exposed. The Group self-insures recurring risks with a
view to optimizing insurance costs.
All Group companies have taken out insurance policies with
first-rate insurance companies for all major risks which could
have a material impact on their business, results or assets and
liabilities.
The risks covered include property damage, business interruption,
merchandise and equipment transportation, third party liability,
and occupational illnesses and accidents.
4. Related party transactions
4.1. transactions carried out during 2006
At its meeting of October 6, 2006 the Board of Directors authorized
the signature of a consulting agreement with Yves-André Istel,
covering assistance and advisory services provided in connection
with the Group’s merger with Visteon.
Also during the year, Valeo carried out further transactions with
its Spanish subsidiaries as part of the implementation of the
2004 Valeorizon international employee stock ownership plan.
These transactions were authorized by the Board of Directors at
its meeting of October 18, 2004. In addition, the brand licensing
agreements entered into between the Company and several of
the Group’s operating subsidiaries – which were authorized by
the Board of Directors on December 15, 2005 (see opposite)
– remained in force in 2006.
4.2. transactions carried out during 2004 and 2005
At its meeting of December 15, 2005, the Board of Directors
authorized the signature of brand licensing agreements between
the Company and several of the Group’s operating subsidiaries.
On October 18, 2004 the Board of Directors authorized Valeo
España SA, Valeo Service España SA, Valeo Iluminacion SA and
Valeo Termico SA, to grant stock options exercisable for Valeo
shares under the 2004 Valeorizon international employee stock
ownership plan.
Further details on these transactions can be found in the Statutory
Auditors’ special reports on regulated agreements relating to
2004 and 2005 and incorporated by reference in this registration
document.
3.4. Pensions and other post-employment benefits
At December 31, 2006, the total amount of provisions set aside by
Valeo and its subsidiaries for the payment of pensions and other
post-employment benefits to members of the Board of Directors
and other members of the Group’s Executive Management team
came to 14 million euros, versus 13 million euros one year
earlier.
In 2006, the total expense recorded by Valeo and its subsidiaries
for the payment of these benefits to former Board members and
other Group executive managers came to 84,154.97 euros.
2006 Reference document - VALEO 165
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the issuer
The table below provides details of the coverage limits by type of risk:
Type of insuranceCoverage limit
(In euros)
Property damage/business interruption 1 billion
General liability and product and environmental liability 200 million
Merchandise and equipment transportation 4,575 million
Directors' and Officers’ liability 60 million
employee-related liability claims 50 million
Property damage cover is based on replacement value and business interruption cover on the margin lost over one year.
In 2006, insurance premiums paid out by the Group in connection with its insurance coverage totaled 12.1 million euros.
2006 Reference document - VALEO166
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Fees paid by the Group to the Auditors and members of their networks
Fees paid by the Group to the Auditors and members of their networks
2006 (In millions of euros) PricewaterhouseCoopers % KPMG %
AuDIT
Issuer - -
Consolidated subsidiaries (4.7) (2.7)
Statutory audit and contractual audits (4.7) (2.7)
Issuer - -
Consolidated subsidiaries (1.6) (0.7)
Audit-related services (1.6) (0.7)
Sub-total – Audit (6.3) 88% (3.4) 89%OTHER SERVICES PROVIDED BY MEMBERS OF THE AuDITORS’ NETWORKS TO CONSOLIDATED SuBSIDIARIES
Legal and tax advisory services (0.9) (0.4)
Other - -
Sub-total – Other services (0.9) 12% (0.4) 11%
TOTAL (7.2) (3.8)
2005 (In millions of euros) PricewaterhouseCoopers % KPMG %
AuDIT
Issuer - -
Consolidated subsidiaries (5.1) (2.2)
Statutory audit and contractual audits (5.1) (2.2)
Issuer - -
Consolidated subsidiaries (2.9) (0.5)
Audit-related services (2.9) (0.5)
Sub-total – Audit (8.0) 92% (2.7) 90%OTHER SERVICES PROVIDED BY MEMBERS OF THE AuDITORS’ NETWORKS TO CONSOLIDATED SuBSIDIARIES
Legal and tax advisory services (0.7) (0.3)
Other - -
Sub-total – Other services (0.7) 8% (0.3) 10%
TOTAL (8.7) (3.0)
2006 Reference document - VALEO 167
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the Company’s capital
General information about the Company’s capital
1. Changes in Valeo’s share capital
At December 31, 2006, Valeo’s share capital totaled
232,741,851 euros, represented by 77,580,617 common shares
with a par value of 3 euros each, all in the same class and all
fully paid-up. The Valeo share is quoted on the Eurolist market
of Euronext.
To the best of the Company’s knowledge, none of these shares
have been pledged.
Changes in capital since December 31, 2002 are as follows:
Changes (In millions of euros)
Year Type of operationPar Value Prermium Total Number of
sharesTotal number
of shares
2002Issuance of shares on exercise of
stock options 1 11 12 277,125 83,333,728
Capital reduction by cancellation of treasury stock (4) (47) (51) 1,200,000 82,133,728
2003 - - - - - 82,133,728
2004 employee share issue 5 28 33 1,575,296 83,709,024
2005Issuance of shares on exercise of
stock options - 1 1 51,333
Capital reduction further to public tender offers (19) (233) (252) (6,250,000) 77,510,357
2006Issuance of shares on exercise of
stock options - 2 2 70,260 77,580,617
In 2004, Valeo set up an international employee stock ownership
plan entitled “Valeorizon 2004” and carried out an employee share
issue under an authorization given at the Annual Shareholders’
Meeting of April 5, 2004. The issue was described in an information
memorandum registered with the French securities regulator
(Autorité des marchés financiers - AMF) on August 27, 2004 under
number 04-738. As a result of this operation, on December 16,
2004, Valeo placed on record a capital increase through the issue
of 1,575,296 new shares, including 400,653 subscribed by Société
Générale in order to offer employees of subsidiaries in certain
countries outside France a leveraged formula equivalent to that
offered through a corporate mutual fund. The shares were issued
without pre-emptive subscription rights for existing shareholders,
at a price of 23.65 euros per share, representing a 20% discount
to the average of the opening prices quoted for Valeo shares over
the twenty trading days preceding the Board of Directors’ decision
setting the opening date of the offer period.
During 2005, Valeo bought back 6,250,000 shares from the
Company’s shareholders, at a price of 40 euros each, representing
approximately 7.5% of the Company’s capital. The shares were
purchased under a public share buyback offer and a simplified
public tender offer, described in an information memorandum
registered with the AMF on April 28, 2005 under number 05-323.
The offer period ended on June 3, 2005 and on June 20, 2005
the Board of Directors canceled the acquired shares and reduced
the Company’s capital by 18,750,000 euros, representing the par
value of the shares.
2006 Reference document - VALEO168
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the Company’s capital
2. Authorized, unissued capital
Securities concerned Date of Shareholders’ Meeting (duration and expiry of authorization)
Maximum amount of issue
Maximum capital increase
utilizations of authorizations
during the year
Issues with pre-emptive subscription rights for existing shareholders
Issuance of shares and/or share equivalents (A) AGM of May 3, 2005 – eighth resolution (authorization given for a maximum of 26 months, expiring on July 3, 2007)
1.52 billion euros worth of debt securities(A)+(C)+(G)
ceiling = 2 billion euros
76.22 million euros (A)+(B)+(C)+(D)+(e)+(F)+
(G) ceiling = 180 million euros
none
Capital increase paid up by capitalizing income, retained earnings or additional paid-in capital (B) AGM of May 3, 2005 – eleventh resolution (authorization given for a maximum of 26 months, expiring on July 3, 2007)
76.22 million euros (A)+(B)+(C)+(D)+(e)+(F)+
(G) ceiling = 180 million euros
none
Issues without pre-emptive subscription rights for existing shareholders
Issuance of shares and/or share equivalents (C) AGM of May 3, 2005 – ninth resolution (authorization given for a maximum of 26 months, expiring on July 3, 2007)
1.52 billion euros worth of debt securities(A)+(C)+(G)
ceiling = 2 billion euros
76.22 million euros (A)+(B)+(C)+(D)+(e)+(F)+
(G) ceiling = 180 million euros
none
Issuance of shares for the purpose of stock-for-stock exchanges. AGM of May 3, 2005 – tenth resolution (authorization given for a maximum of 26 months, expiring on July 3, 2007)
10% of the Company’s share capital(A)+(B)+(C)+
(D)+(e)+(F)+ (G) ceiling = 180 million euros
none
Issuance of shares to members of the employee stock ownership plan (e) AGM of May 3, 2005 – thirteenth resolution (authorization given for a maximum of 26 months, expiring on July 3, 2007)
2.1 million euros (A)+(B)+(C)+(D)+(e)+(F)+
(G) ceiling = 180 million euros
none
Employee stock options and share grants
Options to purchase new shares AGM of April 5, 2004 – twelfth resolution (authorization given for a maximum of 38 months, expiring on June 5, 2007)
1,500,000 shares* none
Share grants (F) AGM of May 3, 2005 – fifteenth resolution (authorization given for a maximum of 26 months, expiring on July 3, 2007)
the number of new or existing shares granted
free of consideration may not exceed 10% of the
Company’s capital.
(A)+(B)+(C)+(D)+(e)+(F)+ (G) ceiling
= 180 million euros
163,000 existing shares granted free of
consideration
Issues with or without pre-emptive subscription rights for existing shareholders
Issuance of shares under a greenshoe option, with or without pre-emptive subscription rights for existing shareholders (G) AGM of May 3, 2005 – twelfth resolution (authorization given for a maximum of 26 months, expiring on July 3, 2007)
Issue capped at 15% of the initial issue 1.52
billion euros worth of debt securities(A)+(C)+(G)
ceiling = 2 billion euros
(A)+(B)+(C)+(D)+(e)+(F)+ (G) ceiling
= 180 million euros
none
* * The twelfth resolution of the Combined Annual and Extraordinary Shareholders’ Meeting of April 5, 2004 authorized the Board of Directors to grant stock purchase
and/or subscription options. At the Combined Annual and Extraordinary Shareholders’ Meeting of May 3, 2005, the authorization to grant stock purchase options
was renewed. The 1,500,000 ceiling mentioned in the table above applies to the aggregate amount of shares allocated on the exercise of either stock purchase
options or stock subscription options. The 2004 authorization was used during that year to grant 1,123,200 stock subscription options and 280,800 stock purchase
options.
2006 Reference document - VALEO 169
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the Company’s capital
3. Share equivalents
3.1. Bonds convertible into new shares and/or exchangeable for existing shares (OCeAnes)
Under the terms of the authorization granted by the General
Shareholders’ Meeting of June 10, 2002 (and confirmed on
March 31, 2003 when the Company’s management structure
was changed), on July 25, 2003 Valeo issued 9,975,754 bonds
convertible into new shares and/or exchangeable for existing shares
(OCEANEs) with a nominal value of 46.40 euros each, representing
an aggregate nominal value of 462,874,985.60 euros.
These bonds – which mature on January 1, 2011 – are quoted on
the Eurolist market of Euronext. They bear interest at 2.375% per
annum and since August 4, 2003 may be exercised at any time.
The bond issue is described in detail in the prospectus registered
with the Commission des Opérations de Bourse on July 25, 2003
under number 03-707.
On June 20, 2005, the Board of Directors adjusted the exercise
conditions of the OCEANE bonds following the public share buyback
offer and simplified public tender offer carried out in May and June
2005, which resulted in Valeo purchasing its own shares at an
amount higher than the publicly quoted price. This adjustment
was made in order to maintain the rights of the bondholders in
accordance with article 242-11 of the March 23, 1967 Decree
and with the OCEANE bond issue contract. Consequently, the
conversion/exchange ratio applicable to the OCEANE bonds was
amended from 1 share for 1 bond to 1.013 shares for 1 bond.
At March 15, 2007, all of the OCEANE bonds were outstanding
and were convertible and/or exchangeable for 10,105,439
shares, taking into account the adjustment due to the public share
buyback offer and simplified public tender offer.
3.2. Stock option plans
The table on page 171 and 172 presents the stock option plans
put in place since 2000.
In accordance with article 174-9-A of the Decree dated March 23,
1967, following the public share buyback offer and simplified
public tender offer, on June 20, 2005 the Board of Directors
adjusted the number of shares underlying the Company’s stock
options. As a result, the exercise ratio was raised from 1 share to
1.01 shares for 1 stock option, with the number of shares to be
allocated on the exercise of options rounded up to the nearest
whole number.
At December 31, 2006, 2,698,217 stock purchase options were
outstanding, exercisable for 2,704,457 existing shares (including
6,240 related to the public share buyback offer and simplified
public tender offer), and 3,706,313 stock subscription options
were outstanding, exercisable for 3,744,050 new shares (including
37,737 related to the public share buyback offer and simplified
public tender offer).
4. Other securities
Under the terms of the authorization granted by the General
Shareholders’ Meeting of May 27, 1998, Valeo issued 500 million
euros worth of bonds on July 13, 2001 maturing on July 13, 2006,
with a fixed annual interest rate of 5.625%. These bonds were
redeemed at maturity.
The General Shareholders’ Meeting of June 10, 2002 granted
the Management Board a five-year authorization in its sixth
resolution to issue bonds subject to a ceiling of 2 billion euros.
This authorization – which was confirmed on March 31, 2003 at
the time of the change in Valeo’s management structure – expires
on June 10, 2007.
The Board of Directors used the above authorization to set up a
Euro Medium Term Notes (EMTN) program in October 2002, which
has been regularly renewed since. Under the program set up on
March 11, 2005, Valeo issued 600 million euros worth of notes
on June 24, 2005. The notes have an eight-year term and bear
fixed interest of 3.75%.
2006 Reference document - VALEO170
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 General information about the Company’s capital
Stock option and Share grant planS in force at december 31, 2006
Impact of tender
offers (56,330 at
June 21, 2005)
No. of shares to be
subscribed or
purchasedResidual grantees
Date of Shareholders’ Meeting
No. of options Term Date (1)
Exercice price
No. of grantees
No. of options
O/w granted to corporate
officers
O/w granted to Executive
man. excl corp. officers
O/w granted to top ten
grantees (2)Conditional
options Start date of exercise periodExpiry
date
Options out at
12/31/2005
Options exercised in
2006
Options exercised at
12/31/2006 (aggregate)
Options cancelled in
2006
Options cancelled at
12/31/2006(aggregate)
Options outstanding
at 12/31/2006
Stock subscription option plans in force at December 31, 2006
05/27/98 500,000 6 years
04/12/00 54.52 € 1 37,500 35,625 0 0 35,625 357 100% conditional 04/11/06 35,625357
00
00
35,625357
37,500357
00
00
0
05/25/00 60.70 € 1 50,000 50,000 0 0 0 500 100% immediately 05/24/06 50,000500
00
00
50,000500
50,000500
00
00
0
122,875 0 0 10/16/06 0 0 0 0 122,875 0 0 0
05/25/99 500,000 6 years
10/17/00 48.00 € 1,084 500,000 0 0 8,28750%-2 years; 100%-3 years 10/16/06 360,000 0 0 360,000 500,000 0 0 594
05/25/00 800,000 8 years
677,125 0 210,000 154,000 0 10/16/08 442,5008,115
0 0 27,0003,942
261,6254,114
415,5004,173
419,673
03/21/01 55.82 € 2 80,000 80,000 0 0 0 800 100% immediately 03/20/09 80,000800
0 0 00
00
80,000800
80,800 2
12/07/01 42.48 € 5 600,000 600,000 0 0 300,000 3,000 50% immediately; 50% conditional
12/06/09 300,000 0 0 0 300,000 300,000 303,000 5
05/09/01 1,000,000 8 years
3,000 0 0 3,000
12/10/01 42.69 € 213 442,875 0 140,000 118,000 0 3,455 50%-2 years; 100%-3 years 12/09/09 331,8003,340
0 0 33,000332
144,075447
298,8003,008
301,808 130
06/10/02 1,500,000 8 years
07/01/02 43.84 € 699 420,000 0 2,500 96,700 0 2,724 50%-2 years; 100%-3 years 06/30/10 264,0002,640
0 0 25,200252
181,200336
238,8002,388
241,188 474
11/25/02 28.30 € 229 600,000 0 159,500 107,500 0 4,568 50%-2 years; 100%-3 years 11/24/10 434,7054,348
30,455305
53,750385
54,500545
196,500685
349,7503,498
353,248 153
03/31/03 23.51 € 755 700,000 160,000 52,750 44,000 0 6,022 50%-2 years; 100%-3 years 03/30/11 571,425 35,300 63,125 34,375 135,125 501,750 506,817 549
03/31/03 1,500,000 8 years
5,789 362 495 360 460 5,067
11/06/03 32.91 € 1,005 780,000 61,000 117,766 77,395 0 7,185 50%-2 years; 100%-3 years 11/05/11 628,1936,932
00
00
54,240612
206,047865
573,9536,320
580,273 748
04/05/04 1,500,000 8 years
11/08/04 28.46 € 1,094 1,123,200 160,000 169,600 134,400 0 10,682 50%-2 years; 100%-3 years 11/07/12 1,033,36010,339
3,80038
3,80038
81,800818
171,6401,161
947,7609,483
957,243 907
TOTAL STOCK SuBSCRIPTION PLANS 6,133,575 1,146,625 852,116 731,995 335,625 47,580 4,531,60846,160
69,555705
120,675918
755,7407,718
2,183,7128,925
3,706,31337,737
3,744,050
Stock purchase option plans in force at December 31, 2006
03/31/03 1,500,000 8 years
11/06/03 32.91 € 1,005 500,000 39,000 75,484 49,605 0 4,263 50%-2 years; 100%-3 years 11/05/11 402,4574,116
00
00
34,760356
132,303503
367,6973,760
371,457 748
04/05/04 1,500,000 8 years
11/08/04 32.74 € 1,094 280,800 40,000 42,400 33,600 0 2,787 50%-2 years; 100%-3 years 11/07/12 258,3402,694
00
00
20,450214
42,910307
237,8902,480
240,370 907
05/03/05 4,500,000 8 years
11/17/05 32.32 € 1,082 650,000 0 94,300 48,900 0 50%-2 years; 100%-3 years 11/16/13 650,000 0 0 53,620 53,620 596,380 596,380 1,028
03/03/06 33.75 € 2 187,000 150,000 37,000 0 0 50%-2 years; 100%-3 years 03/02/14 0 0 0 0 187,000 187,000 2
11/20/06 32.63 € 1,298 1,309,250 0 251,000 175,000 0 50 %-2 ans ; 100 %-3 ans 11/19/14 0 0 0 0 1,309,250 1,309,250 1,298
TOTAL STOCK PuRCHASE PLANS
2,927,050 229 000 500,184 307,105 0 7,050 1,310,7976,810
00
00
108,830570
228,833810
2,698,2176,240
2,704,457
Share grant plans in force at December 31, 2006
05/03/05 4,500,000 - 11/17/05 Price at 02/17/08
1,082 600,000 0 141,450 73,350 300,000 Vesting period: 2 years 3 mths50% cond (½ based on 2006 perf.; ½ based on 2007 perf.*)
600,000 0 0 58,130 58,130 541,870 541,870 1,028
03/03/06 Price at 06/03/08
2 63,000 50,000 13,000 0 36,500 Vesting period: 2 years 3 mths50% cond (½ based on 2006 perf.; ½ based on 2007 perf.*)
0 0 0 0 0 63,000 63,000 2
11/20/06 Price at 11/20/09
116 100,000 0 0 18,500 0 Vesting period: 3 years 0 0 0 0 0 100,000 100,000 116
TOTAL SHARE GRANT PLANS 763,000 50,000 154,450 91,850 336,500 0 600,000 0 0 58,130 58,130 704,870 704,870
(1) Date of board of Directors/Supervisory Board/Management Board meeting.(2) Including Directors who are not corporate officers.
On March 7, 2007, the Board of Directors granted 250,000 stock purchase options with an exercise price of 36.97 euros, including 200,000 granted to Thierry Morin
that are subject to lock-up provisions as described in paragraph 3.1.1 on page 161, and 50,000 to another of the Group’s executive managers (non-corporate officer).
On the same date, the Board also granted 100,000 shares free of consideration to a limited number of high-potential managers.
* 2006 performance: the Group’s consolidated operating margin before non-recurring expenses as a % of total income from operations ≥ 4.5%
* 2007 performance: the Group’s consolidated operating margin before non-recurring expenses as a % of total income from operations ≥ 5%.
Public share buyback/simplified public tender offer.
2006 Reference document - VALEO 171
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5General information about the Company’s capital
Impact of tender
offers (56,330 at
June 21, 2005)
No. of shares to be
subscribed or
purchasedResidual grantees
Date of Shareholders’ Meeting
No. of options Term Date (1)
Exercice price
No. of grantees
No. of options
O/w granted to corporate
officers
O/w granted to Executive
man. excl corp. officers
O/w granted to top ten
grantees (2)Conditional
options Start date of exercise periodExpiry
date
Options out at
12/31/2005
Options exercised in
2006
Options exercised at
12/31/2006 (aggregate)
Options cancelled in
2006
Options cancelled at
12/31/2006(aggregate)
Options outstanding
at 12/31/2006
Stock subscription option plans in force at December 31, 2006
05/27/98 500,000 6 years
04/12/00 54.52 € 1 37,500 35,625 0 0 35,625 357 100% conditional 04/11/06 35,625357
00
00
35,625357
37,500357
00
00
0
05/25/00 60.70 € 1 50,000 50,000 0 0 0 500 100% immediately 05/24/06 50,000500
00
00
50,000500
50,000500
00
00
0
122,875 0 0 10/16/06 0 0 0 0 122,875 0 0 0
05/25/99 500,000 6 years
10/17/00 48.00 € 1,084 500,000 0 0 8,28750%-2 years; 100%-3 years 10/16/06 360,000 0 0 360,000 500,000 0 0 594
05/25/00 800,000 8 years
677,125 0 210,000 154,000 0 10/16/08 442,5008,115
0 0 27,0003,942
261,6254,114
415,5004,173
419,673
03/21/01 55.82 € 2 80,000 80,000 0 0 0 800 100% immediately 03/20/09 80,000800
0 0 00
00
80,000800
80,800 2
12/07/01 42.48 € 5 600,000 600,000 0 0 300,000 3,000 50% immediately; 50% conditional
12/06/09 300,000 0 0 0 300,000 300,000 303,000 5
05/09/01 1,000,000 8 years
3,000 0 0 3,000
12/10/01 42.69 € 213 442,875 0 140,000 118,000 0 3,455 50%-2 years; 100%-3 years 12/09/09 331,8003,340
0 0 33,000332
144,075447
298,8003,008
301,808 130
06/10/02 1,500,000 8 years
07/01/02 43.84 € 699 420,000 0 2,500 96,700 0 2,724 50%-2 years; 100%-3 years 06/30/10 264,0002,640
0 0 25,200252
181,200336
238,8002,388
241,188 474
11/25/02 28.30 € 229 600,000 0 159,500 107,500 0 4,568 50%-2 years; 100%-3 years 11/24/10 434,7054,348
30,455305
53,750385
54,500545
196,500685
349,7503,498
353,248 153
03/31/03 23.51 € 755 700,000 160,000 52,750 44,000 0 6,022 50%-2 years; 100%-3 years 03/30/11 571,425 35,300 63,125 34,375 135,125 501,750 506,817 549
03/31/03 1,500,000 8 years
5,789 362 495 360 460 5,067
11/06/03 32.91 € 1,005 780,000 61,000 117,766 77,395 0 7,185 50%-2 years; 100%-3 years 11/05/11 628,1936,932
00
00
54,240612
206,047865
573,9536,320
580,273 748
04/05/04 1,500,000 8 years
11/08/04 28.46 € 1,094 1,123,200 160,000 169,600 134,400 0 10,682 50%-2 years; 100%-3 years 11/07/12 1,033,36010,339
3,80038
3,80038
81,800818
171,6401,161
947,7609,483
957,243 907
TOTAL STOCK SuBSCRIPTION PLANS 6,133,575 1,146,625 852,116 731,995 335,625 47,580 4,531,60846,160
69,555705
120,675918
755,7407,718
2,183,7128,925
3,706,31337,737
3,744,050
Stock purchase option plans in force at December 31, 2006
03/31/03 1,500,000 8 years
11/06/03 32.91 € 1,005 500,000 39,000 75,484 49,605 0 4,263 50%-2 years; 100%-3 years 11/05/11 402,4574,116
00
00
34,760356
132,303503
367,6973,760
371,457 748
04/05/04 1,500,000 8 years
11/08/04 32.74 € 1,094 280,800 40,000 42,400 33,600 0 2,787 50%-2 years; 100%-3 years 11/07/12 258,3402,694
00
00
20,450214
42,910307
237,8902,480
240,370 907
05/03/05 4,500,000 8 years
11/17/05 32.32 € 1,082 650,000 0 94,300 48,900 0 50%-2 years; 100%-3 years 11/16/13 650,000 0 0 53,620 53,620 596,380 596,380 1,028
03/03/06 33.75 € 2 187,000 150,000 37,000 0 0 50%-2 years; 100%-3 years 03/02/14 0 0 0 0 187,000 187,000 2
11/20/06 32.63 € 1,298 1,309,250 0 251,000 175,000 0 50 %-2 ans ; 100 %-3 ans 11/19/14 0 0 0 0 1,309,250 1,309,250 1,298
TOTAL STOCK PuRCHASE PLANS
2,927,050 229 000 500,184 307,105 0 7,050 1,310,7976,810
00
00
108,830570
228,833810
2,698,2176,240
2,704,457
Share grant plans in force at December 31, 2006
05/03/05 4,500,000 - 11/17/05 Price at 02/17/08
1,082 600,000 0 141,450 73,350 300,000 Vesting period: 2 years 3 mths50% cond (½ based on 2006 perf.; ½ based on 2007 perf.*)
600,000 0 0 58,130 58,130 541,870 541,870 1,028
03/03/06 Price at 06/03/08
2 63,000 50,000 13,000 0 36,500 Vesting period: 2 years 3 mths50% cond (½ based on 2006 perf.; ½ based on 2007 perf.*)
0 0 0 0 0 63,000 63,000 2
11/20/06 Price at 11/20/09
116 100,000 0 0 18,500 0 Vesting period: 3 years 0 0 0 0 0 100,000 100,000 116
TOTAL SHARE GRANT PLANS 763,000 50,000 154,450 91,850 336,500 0 600,000 0 0 58,130 58,130 704,870 704,870
(1) Date of board of Directors/Supervisory Board/Management Board meeting.(2) Including Directors who are not corporate officers.
On March 7, 2007, the Board of Directors granted 250,000 stock purchase options with an exercise price of 36.97 euros, including 200,000 granted to Thierry Morin
that are subject to lock-up provisions as described in paragraph 3.1.1 on page 161, and 50,000 to another of the Group’s executive managers (non-corporate officer).
On the same date, the Board also granted 100,000 shares free of consideration to a limited number of high-potential managers.
* 2006 performance: the Group’s consolidated operating margin before non-recurring expenses as a % of total income from operations ≥ 4.5%
* 2007 performance: the Group’s consolidated operating margin before non-recurring expenses as a % of total income from operations ≥ 5%.
Public share buyback/simplified public tender offer.
2006 Reference document - VALEO172
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Current ownership structure
Current ownership structure
1. Changes in ownership structure since 2004
Wendel Investissements
GroupCaisse des Dépôts
et consignations**
The Boston Company
Asset Management
LLC
Brandes Investment Partners LP
Franklin Resources,
Inc.
Pardus European
Special Opportunities
Master Fund LP Employees
Treasury stock Other
December 31, 2004
number of shares 8,186,045 5,367,080 3,075,521 602,105 8,465,610 1,575,296 1,037,804 55,399,56
% 9.78 6.41 3.67 0.72 10.11 1.88 1.24 66.19
number of voting rights* 8,816,045 6,982,835 3,075,521 602,105 8,465,610 1,575,296 0 54,933,725
% 10.44 8.27 3.64 0.71 10.02 1.87 0 65.05
December 31, 2005
number of shares 1,012,072 5,061,559 4,124,213 3,996,838 8,323,865 1,418,375 807,704 52,765,731
% 1.31 6.53 5.32 5.16 10.74 1.83 1.04 68.07
number of voting rights* 1,012,072 7,128,860 4,124,213 3,996,838 8,323,865 1,418,375 0 52,918,450
% 1.28 9.03 5.23 5.06 10.55 1.80 0 67.05
December 31, 2006
number of shares 592,072 5,061,559 4,208,278 4,120,338 3,752,183 3,450,000 1,041,149 686,704 54,668,334
% 0.76 6.52 5.42 5.31 4.84 4.45 1.34 0.89 70.47
number of voting rights* 592,072 7,128,860 4,208,278 4,120,338 3,752,183 3,450,000 1,041,149 0 54,816,574
% 0.75 9.01 5.32 5.21 4.74 4.36 1.32 0 69.29
* Shares registered in the name of the same shareholder for a minimum of 4 years carry double voting rights (see page 148).* * Caisse des Dépôts et consignations interest held in its own account. Caisse des Dépôts et consignations is the only shareholder owning over 5% of the capital that has
double voting rights.
1.1. Major shareholders
To the best of the Company’s knowledge, the only shareholders
directly or indirectly holding 5% or more of the Company’s capital
or voting rights at December 31, 2006 were Caisse des Dépôts et
consignations, The Boston Company Asset Management LLC and
Brandes Investment Partners LP.
As far as the Company is aware, the only shareholders directly
or indirectly holding 2% or more of the Company’s capital or
voting rights at December 31, 2006 were Caisse des Dépôts
et consignations, The Boston Company Asset Management
LLC, Brandes Investment Partners LP, Pardus European Special
Opportunities Master Fund LP, Franklin Resources, Inc., Tocqueville
Finance S.A., and M&G Investment Management Ltd.
On April 24, 2006, M&G Investments Management Ltd. declared
that it had increased its interest to above the 2% disclosure
threshold provided in the Company’s bylaws and that it held
2.10% of the Company’s capital and 2.06% of the voting rights.
On September 11, 2006, Franklin Resources, Inc. declared that it
had reduced its interest to below the statutory 10% disclosure
threshold and the 2% threshold provided in the Company’s
2006 Reference document - VALEO 173
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5Current ownership structure
bylaws, and that it held 7.38% of the Company’s capital and
7.26% of the voting rights.
On October 25, 2006, Franklin Resources, Inc. declared that it had
reduced its interest to below the statutory 5% disclosure threshold
and the 2% threshold provided in the Company’s bylaws, and
that it held 4.84% of the Company’s capital and 4.74% of the
voting rights.
On November 27, 2006, Pardus European Special Opportunities
Master Fund LP declared that it had increased its interest to
beyond the 2% disclosure threshold provided in the bylaws in
relation to the Company’s capital and voting rights.
On December 21, 2006, Pardus European Special Opportunities
Master Fund LP declared that it had increased its interest to
beyond the 2% disclosure threshold provided in the bylaws and
that it held 4.45% of the Company’s capital and 4.36% of the
voting rights.
In early 2007, Pardus European Special Opportunities Master Fund
LP declared that it had increased its interest to beyond the 5%
disclosure threshold on January 10, 2007 and that it held 5.16%
of the Company’s capital and 5.07% of the voting rights. Pardus
European Special Opportunities Master Fund LP subsequently
declared that it had increased its interest to beyond the 10%
disclosure thresholds both in relation to the Company’s capital
(on February 21, 2007) and voting rights (on February 27, 2007),
and that it held 10.57% of Valeo’s capital and 10.36% of its voting
rights. In its statement of intention, Pardus European Special
Opportunities Master Fund LP stated that it was not acting in
concert with any third party and it had no immediate plans to take
over control of Valeo although it did reserve the right to continue
to purchase or sell Valeo shares based on market opportunities
and to request the appointment of one or more persons of its
choosing as members of Valeo’s Board of Directors.
Finally, on March 21, 2007, Pardus European Special Opportunities
Master Fund LP declared that at that date it had increased its
interest in the Company to beyond the disclosure threshold of
12% of the capital and voting rights.
1.2. treasury stock
At December 31, 2006, Valeo directly or indirectly held 686,704
of its own shares, representing 0.89% of the Company’s share
capital, with a unit value of 32.53 euros per share based on their
purchase price. At December 31, 2005, Valeo held 807,704 of its
own shares (1.04% of the share capital).
Out of the total number of treasury shares held at December 31,
2006, 617,704 were earmarked for allocation on the exercise of
stock options and 69,000 shares were allocated for use under a
liquidity contract that complies with the Code of Ethics issued by
the AFEI (French Association of Investment Companies), signed
with an investment services provider on April 22, 2004.
At the signature date of this contract 220,000 Valeo shares and
an amount of 6,600,000 euros were allocated for use under
this liquidity agreement. The total resources earmarked for this
purpose at December 31, 2006 represented 69,000 shares and
13,039,863 euros
During the year, Valeo acquired, through an investment services
provider, 1,178,396 shares at an average price of 29.53 euros, and
sold 1,299,396 shares at an average price of 29.72 euros. Trading
fees as well as the fees relating to the liquidity contract with the
investment services provider totaled 264,712 euros, compared
with 271,615 euros in 2005.
Market transactions were carried out under the authorizations
granted under the sixth resolution of the General Shareholders’
Meeting of May 3, 2005 and the fifth resolution of the General
Shareholders’ Meeting of May 17, 2006, in accordance with a
liquidity contract entered into with an investment services provider
in order to provide a liquid market for the Company’s shares and
stabilize the share price.
1.3. Directors’ interests
As part of the employee share issue carried out in 2004 (see
page 168), Thierry Morin, Chairman and Chief Executive Officer of
Valeo, subscribed to 153,617 units in the Valeorizon mutual fund,
corresponding to 153.62 Company shares, and 921,702 units in
the Valeorizon+ mutual fund, entitling him to 7,373.62 shares as
a result of the applicable leverage effect. Thierry Morin’s total
investment in these funds came to 25,431.30 euros, representing
23.65 euros per unit.
At December 31, 2006, Thierry Morin and other members of the
Board of Directors held less than 1% of Valeo’s capital and voting
rights in a personal capacity.
1.4. employee stock ownership
At December 31, 2006, employees held a total of 1,041,149
shares under Group employee stock ownership plans, directly
or through two corporate mutual funds, representing 1.34% of
the Company’s capital. At December 31, 2005 employees held
1,418,375 shares, representing 1.83% of the capital.
2006 Reference document - VALEO174
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Current ownership structure
1.5. Change in control
To the best of the Company’s knowledge, there are no shareholder
pacts or agreements that could lead to a change in control of
the Company.
There are no provisions in the Company’s bylaws or internal rules
that may delay, postpone or prevent a change in the Company’s
control.
1.6. Capital under option
At the date of this registration document, no capital of any
member of the Group was under option or agreed conditionally
or unconditionally to be put under option.
3. Shareholder identification
Registered and bearer shares are recorded in shareholders’
accounts in accordance with applicable laws and regulations.
However, a bank, broker or other intermediary may register
on behalf of shareholders who are domiciled outside France
in accordance with article 102 of the French Civil Code. This
registration may be made in the form of a joint account or several
individual accounts, each corresponding to one shareholder. Any
such intermediary must inform the Company or the intermediary
managing the Company’s account that it is holding the shares on
behalf of another party.
The Company is entitled to identify all holders of shares and
other securities redeemable, exchangeable, convertible or
otherwise exercisable for shares carrying rights to vote at General
Shareholders’ Meetings, in accordance with the procedure provided
for in article L. 228-2 et seq. of the French Commercial Code.
In order to identify holders of bearer shares, in accordance with
the applicable laws and regulations, the Company is entitled to
request, at any time, from the central depository responsible for
its securities issues account, in exchange for a fee, the name
– or, in the case of corporate shareholders, the company name -,
nationality, year of birth – or, in the case of corporate shareholders,
the year of incorporation - and address of holders of bearer shares
and other securities redeemable, exchangeable, convertible or
otherwise exercisable for shares carrying rights to vote at General
Shareholders’ Meetings, together with details of the number of
2. Disclosure thresholds
In accordance with article L. 233-7 of the French Commercial
Code, any individual or legal entity, acting alone or in concert that
holds a number of shares representing over 5%, 10%, 15%, 20%,
25%, 33-1/3%, 50%, 66-2/3%, 90% or 95% of the Company’s
capital or voting rights, is required to disclose to the Company
and the AMF by letter that the related disclosure threshold has
been exceeded. Said disclosure must be made within five trading
days from the date when the threshold is exceeded and must
also state the total number of shares and voting rights held by
the shareholder concerned. The AMF subsequently publishes the
disclosures. This disclosure obligation also applies when an interest
in the Company’s capital and/or voting rights is reduced to below
the above-mentioned thresholds.
If any shareholder fails to comply with these disclosure
requirements, the shares in excess of the relevant threshold will
be stripped of voting rights at any and all General Shareholders’
Meetings held within the two-year period from the date when
the omission is remedied.
Since the General Shareholders’ Meeting of March 31, 2003,
article 9 of the Valeo bylaws states that, in addition to the
applicable statutory disclosure thresholds, any individual or legal
entity, acting alone or in concert, that raises or reduces its interest
in the Company’s capital or voting rights to above or below 2%
respectively (or any multiple thereof), is required to disclose to
the Company by registered letter with return receipt requested
that the relevant disclosure threshold has been crossed. Said
disclosure must be made within 15 days from the date when
the threshold is crossed and the shareholder concerned must state
their own identity as well as that of any parties acting in concert
with the shareholder. In accordance with the seventh paragraph
of article L. 228-1 of the French Commercial Code, this disclosure
obligation also applies to shares held through an intermediary.
Non-compliance with the above obligations is subject to the
penalties set out in article L. 233-14 of the French Commercial
Code, at the request of one or several shareholders together
holding at least 2% of the Company’s capital or voting rights, as
recorded in the minutes of the General Shareholders’ Meeting.
2006 Reference document - VALEO 175
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5Current ownership structure
shares held by each such shareholder and of any restrictions
applicable to the securities concerned.
Based on the list provided by the above-mentioned organization,
where the Company considers that shares may be held on behalf
of third parties, it may request, in accordance with the same
conditions, either through the organization or directly from the
parties mentioned on the list, the same information concerning
the holders of the shares. If one of the parties mentioned on the
list is a bank, broker or other intermediary, it must disclose the
identity of the shareholders for whom it is acting. The information
is provided directly to the financial intermediary managing the
Company’s share account, which shall pass on said information
either to the Company or the above-mentioned central depositary,
as applicable.
For registered shares and other securities redeemable,
exchangeable, convertible or otherwise exercisable for shares,
any intermediary holding the securities on behalf of a third party
must disclose the identity of the person or entity for whom it
is acting as well as the number of shares held by each, upon
simple request by the Company or its representative, which may
be made at any time.
The Company may also request from any corporate shareholder
holding over 2.5% of the Company’s capital or voting rights,
information concerning the identity of persons or companies
holding either directly or indirectly over one third of the corporate
shareholder’s capital or voting rights.
If an individual or corporate shareholder is asked to provide
information in accordance with the above conditions and fails to
provide it by the applicable deadline, or provides incomplete or
incorrect information, the shares or other securities redeemable,
exchangeable, convertible or otherwise exercisable for shares
recorded in the shareholder’s account shall be stripped of voting
rights for all General Shareholders’ Meetings held until the
identification request has been fulfilled, and the payment of any
corresponding dividends shall also be deferred until that date.
In addition, if an individual or company registered in the Company’s
shareholders’ account deliberately ignores their obligations, the
Company or one or more shareholders holding at least 5% of the
Company’s capital may apply to the court of the place in which the
Company’s registered office is located to obtain an order to totally
or partially strip the shares concerned of their voting rights and the
corresponding dividend, for a maximum period of five years.
2006 Reference document - VALEO176
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Market for the Company’s securities
Market for the Company’s securities
1. Share performance over 18 months
Date
Price (In euros)
Trading volume(no. of shares)
Trading volume (In millions of
euros)High Low Closing (average)
September 2005 35.14 32.99 33.73 14,434,933 489.14
October 2005 35.14 30.50 32.73 12,923,368 424.15
november 2005 32.07 30.68 31.41 6,620,180 208.34
December 2005 32.26 30.50 31.64 7,733,743 246.93
January 2006 33.49 31.28 32.33 9,304,957 301.22
February 2006 34.75 32.90 33.82 9,615,280 324.81
March 2006 35.40 31.58 33.15 12,008,779 400.94
April 2006 34.88 32.90 34.09 12,088,063 412.42
May 2006 34.56 29.46 31.85 11,416,718 361.92
June 2006 30.06 26.73 28.18 10,950,165 309.46
July 2006 29.18 25.00 26.91 15,883,516 429.02
August 2006 29.08 27.11 27.97 11,942,198 335.11
September 2006 29.08 26.35 27.81 17,235,513 477.23
October 2006 31.30 26.52 27.98 24,508,984 691.80
november 2006 31.20 28.81 30.09 15,424,406 464.32
December 2006 32.25 29.26 31.31 13,152,450 410.19
January 2007 36.77 31.35 34.24 18,429,439 637.83
February 2007 38.55 34.91 36.88 14,875,097 550.19
Source : Euronext Paris.
2. Share buyback program and cancellation of treasury shares
2.1. Share buyback program
In the fifth resolution of the Combined Annual and Extraordinary
Shareholders’ Meeting held on May 17, 2006, in accordance
with articles L. 225-209 et seq. of the French Commercial Code,
the Company’s shareholders granted the Board of Directors an
eighteen-month authorization from the date of said Meeting
to trade in the Company’s shares, including by delegation. This
authorization may be used for the following purposes: (i) to
allocate shares further to the exercise of stock options, (ii) to
award shares to employees by way of profit-sharing bonuses
and in connection with company savings plans, (iii) to grant
shares free of consideration (subject to an annual ceiling of 1%
of the Company’s capital), (iv) to attribute shares on redemption,
conversion, exercise or exchange of share equivalents, (v) to
purchase shares with a view to canceling some or all of them,
(vi) to attribute shares in exchange for shares in another entity
in connection with acquisitions, (vii) to ensure liquidity in the
secondary market for the Company’s shares in accordance with
a liquidity contract entered into with an investment services
provider, and (viii) to enable an investment services provider to
carry out share purchases, sales or transfers, including through
off-market transactions.
The number of shares that may be acquired under this authorization
may not represent over 10% of the Company’s capital.
The purchase price may not exceed 70 euros per share.
This authorization, given for an eighteen-month period as of the
Shareholders Meeting held on May 17, 2006, superseded, for the
unexpired period, the unused portion of the authorization granted
2006 Reference document - VALEO 177
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5Market for the Company’s securities
in the sixth resolution of the Combined Annual and Extraordinary
Shareholders’ Meeting held on May 3, 2005.
A description of the 2006 renewal of the Company’s share buyback
program was drawn up in accordance with articles 241-1 et seq.
of the AMF’s General Regulations and published on both Valeo’s
and the AMF’s website on May 16, 2005.
In 2006 Valeo carried out a number of share sale and purchase
transactions under the above mentioned share buyback program,
as well as the program authorized by shareholders at the General
Meeting of May 3, 2005.
During the year the Company purchased 1,178,396 shares at
an average price of 29.53 euros and sold 1,299,396 shares at
an average price of 29.72 euros. All of these transactions were
carried out under the liquidity contract signed on April 22, 2004
with an investment services provider which complies with the
Code of Ethics of the AFEI (French Association of Investment
Companies).
At the year-end, Valeo held 686,704 treasury shares representing
0.89% of Company’s capital, with a unit value of 32.53 euros based
on their purchase price. At December 31, 2005, the Company held
807,704 treasury shares, representing 1.04% of its capital.
The number of shares held in treasury at December 31, 2006
broke down as 617,704 to be allocated on the exercise of stock
options and 69,000 to be used in connection with the above-
mentioned liquidity contract.
2.2. Cancellation of treasury shares
In the fifteenth resolution of the Combined Annual and
Extraordinary Shareholders’ Meeting held on May 3, 2005,
shareholders confirmed the authorization granted to the Board of
Directors by the Combined Annual and Extraordinary Shareholders’
Meeting of April 5, 2004 to reduce the Company’s share capital
by canceling treasury shares. The number of shares cancelled in
any given twenty-four month period may not exceed 10% of the
Company’s capital.
3. Dividends
Dividends per share over the past three years were as follows:
2003 2004 2005
Gross dividend per share (in euros) 1.57 na na
net dividend per share (in euros) 1.05 1.10 1.10
tax credit/allowance (in euros) 0.525* ** ***
total dividend (excluding tax credit/allowance) - (in millions of euros) 86 91 84* For shareholders entitled to a 50% tax credit.** This amount is eligible for the 50% tax allowance provided for in article 158-3-2 of the French General Tax Code.*** This amount is eligible for the 40% tax allowance provided for in article 158-3-2 of the French General Tax Code.
In view of the Group’s results in 2006, at the General Shareholders’
Meeting to be held to approve the accounts for the year, the
Board of Directors will recommend a net dividend of 1.10 euros
per share.
As the dividend distribution rate is not fixed, future dividend
payments will depend on the Group’s results as well as the
financing required to drive future growth. The Company cannot
guarantee the amount of dividends to be paid for any particular
year.
2006 Reference document - VALEO178
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Investor relations
Investor relations
Valeo aims to provide a steady flow of exhaustive and detailed
real-time information to its diverse financial community, comprising
current and prospective private and institutional shareholders, as
well as financial analysts.
1. Individual shareholder relations
2. Institutional shareholder relations
Valeo’s senior management team maintained frequent contacts
with investors and analysts over the course of the year. In total,
more than 800 shareholder representatives or advisors were
put in touch with the senior management team or the Investor
Relations Director in 2006.
Meetings were organized in major financial centers in Europe,
North America and Asia. These took various forms, including
one-on-one meetings, group events, conference calls, themed
or general investor conferences, and site visits.
The objective of the Group’s Investor Relations Department is
to serve as an interface between the Group and investors and
analysts, in order to keep them informed of the Group’s strategy,
products, key events and financial performance.
Contact:
Rémy Dumoulin
Investor Relations Director
Valeo
43, rue Bayen
F-75848 Paris Cedex 17
France
Tel: +33 (0) 1 40 55 20 39
Fax: +33 (0) 1 40 55 20 40
E-mail: remy.dumoulin@valeo.com
Provisional financial communication calendar
First-quarter 2007 results: April 24, 2007.
First-half 2007 results: July 26, 2007.
Third-quarter 2007 results: October 17, 2007.
Full-year 2007 results: first half of February 2008.
•
•
•
•
Based on the Company’s estimates, individual shareholders control
approximately 5% of Valeo’s share capital. These shareholders,
who are mostly domiciled in France, have access to the following
communication tools:
A toll-free line (0 800 814 045) available to individual
shareholders in France since 1998. In 2006, this service dealt
with approximately 200 requests relating to Valeo’s share price,
communications strategy, shareholder rights, and news and
outlook relating to the Group.
The valeo.com website which is aimed at providing information
to all shareholders. The Finance section of the site provides real-
time stock market and shareholder information, including the
latest share prices, ownership structure, dividends, and AGM
documents. Financial publications can also be consulted on-line,
•
•
such as annual and interim reports and financial presentations,
as well as all press releases and prospectuses. In addition,
visitors to the site can submit financial questions to the Group’s
spokesperson. Since November 2003, users who register their
details on-line receive a periodical newsletter providing relevant
information for those interested in monitoring the Group’s
progress. At the end of the year some 3,300 people were
subscribers to the newsletter.
The share registrar service provided by Société Générale
since the end of 2000. This service, used by more than 3,000
shareholders at December 31, 2006 – mainly individual
shareholders – provides a share information line (0825 820 000),
available only in France, for questions concerning dividends, tax
issues and placing orders.
•
2006 Reference document - VALEO 179
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5Investor relations
3. Ownership structure
3.1. Ownership structure at December 31, 2006
% capital (% voting rights)
5.31 % (5.21 %)Brandes Investment Partners LP
4.84 % (4.74 %)Franklin
Resources, Inc.
73.46 %** (71.36 %)Autres
** Including 686,704 treasury shares (0.89 %)* Own account
Number of voting rights: 79,109,454Number of shares: 77,580,617
6.52 % (9.01 %)Caisse des Dépôts et consignations (CDC)*
5.42 % (5.32 %)The Boston Company Asset Management LLC
Pardus European
Special Opportunities
Master Fund LP
4.45 % (4.36 %)
3.2. Ownership structure at March 15, 2007
% capital (% voting rights)
4.84 % (4.74 %)Franklin Resources, Inc.
72.76 %** (70.68 %)Autres
** Including 639,504 treasury shares (0.82 %)* Own account
Number of voting rights: 79,153,315Number of shares: 77,580,617
6.52 % (9.01 %)Caisse des Dépôts et consignations (CDC)*
5.31 % (5.21 %)Brandes Investment Partners LP
Pardus European
Special Opportunities
Master Fund LP
10.57 % (10.36 %)
4. Stock market data
2006 2005 2004 2003 2002
Market capitalization at year-end (in billions of euros) 2.45 2.43 2.58 2.61 2.46
number of shares 77,580,617 77,510,357 83,709,024 82,133,728 82,133,728
highest share price (in euros) 35.40 38.20 38.35 36.40 53.00
Lowest share price (in euros) 25.00 30.25 27.22 19.75 23.00
Average share price (in euros) 30.58 33.79 32.47 29.27 40.14
Share price at end of year (in euros) 31.53 31.41 30.80 31.75 29.90
2006 Reference document - VALEO180
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Investor relations
5. Per share data
(In euros)
IFRS
2006 2005 (1) 2004 (1) 2004
earnings per share (based on the average number of shares) 2.10 1.80 2.92 2.93
net dividend 1.10* 1.10 1.10 1.10
Gross dividend** n.a.** n.a.** n.a.** n.a.**
* 1.10 euro dividend subject to approval by shareholders at the General Shareholders’ Meeting to be held to approve the 2006 financial statements.** Amounts eligible for the tax allowance provided for in article 158-3-2 of the French General Tax Code – 50% for 2004 and 40% for 2005 and 2006.(1) The data for 2005 and 2004 have been restated, primarily in relation to non-strategic operations.
6. Share price from January 1, 2002 through December 31, 2006
0
10
20
30
40
50
60
OJAJOJAJOJAJOJAJOJAJ
2002 2003 2004 2005 2006
Valeo
CAC 40
2006 Reference document - VALEO 181
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5Information on subsidiaries and affiliates
7. Monthly trading volumes
2002 2003 2004 2005 2006
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
OJAJOJAJOJAJOJAJOJAJ
Volume
Information on subsidiaries and affiliates
Following the creation of subsidiaries for industrial activities in
2002, Valeo is now the Group’s holding and treasury management
company. As such, Valeo centralizes the management of market
risks to which its operating subsidiaries are exposed, including
changes in interest rates as well as fluctuations in exchange
rates and quoted commodities prices. Valeo also centralizes the
financing requirements of these subsidiaries and is generally the
sole counterparty of the financial institutions that provide the
funding to cover these requirements. The related assets (cash
and marketable securities) and liabilities (external debt) are
included in Valeo’s balance sheet. Valeo is also responsible for
upholding the image of the Valeo brand. To this end, it has entered
into brand licensing agreements with certain of its operating
subsidiaries (see related party transactions on page 165). Group-
wide control and support functions, encompassing accounting,
legal counsel, information technology, procurement, real-estate
management and supply-chain management, are performed
by Valeo Management Services, which bills a fee to the French
subsidiaries. The Group’s operating assets and liabilities are carried
by its 172 subsidiaries, mainly by the industrial and commercial
entities listed on page 183. A list of consolidated companies
– including their geographic location – is provided in Note 7 to
the consolidated financial statements on pages 120-126.
2006 Reference document - VALEO182
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Information on subsidiaries and affiliates
ICHIKOH INDUSTRIESLIMITED
29.4
VALEO SERVICE DEUTSCHLAND GmbH
VALEO ENGINE COOLING A.B.
(Sweden)100
VALEO SERVICE UK LIMITED
(UK)
European Union Other European Countries
Africa North America North America South America Asia
France Germany Belgium,UK, Netherlands,
Sweden
Italy, Spain,
Portugal
Hungary, Poland, Czech Republic,
Slovakia
Turkey,Romania
Morocco,Tunisia,
South Africa
United States Mexico Brazil,Argentina
Iran South Korea China Japan India Thailand, Indonesia
VALEO EMBRAYAGES VALEO BELEUCHTUNG VALEO VISION BELGIQUE
VALEO S.p.a. (Italy)
VALEO AUTO-ELECTRIC HUNGARY SPARE
PARTS PRODUCTION LLC (Hungary)
VALEO OTOMOTIV SISTEMLERI
ENDUSTRISI A.S. (Turkey)
VALEO BOUSKOURA (Morocco) VALEO, INC.
VALEO MATERIALES DE FRICCION DE MEXICO
SA de CV
VALEO SISTEMAS AUTOMOTIVOS Ltda
(Brazil)
VALEO ARMCO ENGINE COOLING
Co.
VALEO ELECTRICAL SYSTEMS KOREA Ltd
TAIZHOU VALEO-WENLING AUTOMOTIVE SYSTEMS
Company Limited
VALEO ENGINE COOLING JAPAN Co. Ltd
VALEO FRICTION MATERIALS INDIA
LIMITED
VALEO THERMAL SYSTEMS SALES (Thailand) Co. Ltd
100 100 100 99.9 100 100 100 100 100 100 51 100 100 100 60 74.9
VALEO MATERIAUX DE FRICTION
VALEO SCHLATER UND SENSOREN GmbH
VALEO SERVICE BELGIQUE
VALEO SICUREZZA ABITACOLO
S.p.a. (Italy)
VALEO ELECTRIC AND ELECTRONIC SYSTEMS Sp.zo.o. (Poland)
VALEO OTOMOTIV DAGITIM A.S.
(Turkey)
VALEO FRICTION MATERIALS, INC.
VALEO SISTEMAS ELECTRICOS SA de CV
VALEO EMBRAGUES ARGENTINA S.A.
VALEO PYEONG HWA Co. Ltd
HUBEI VALEO AUTO LIGHTING COMPANY LTD
VALEO UNISIA TRANSMISSIONS K.K.
AMALGAMATIONS VALEO CLUTCH
LIMITED
VALEO SIAM THERMAL SYSTEMS Co. Ltd
(Thailand)100 100 100 99.9 100 100 100 100 100 100 50 100 66 50
VALEO ENGINEERING CENTER (INDIA)PRIVATE LIMITED
100
74.9VALEO SWITCHES &
DETECTION SYSTEMS-VSDS
TELMA RETARDER LIMITED
(UK)
VALEO SISTEMI DI CLIMATIZZAZIONE
S.p.a. (Italy)
NURSAN ED (Turkey)
VALEO AIN SEBAA (Morocco)
VALEO INVESTMENT HOLDINGS, INC.
VALEO TERMICO SA de CV
EMELAR Sociedad Anonima
(Argentina)
VALEO PYEONG HWA DISTRIBUTION Co. Ltd
VALEO AUTOMOTIVE AIR CONDITIONING HUBEI Co. Ltd
VALEO THERMAL SYSTEMS JAPAN CORP.
VALEO COMPRESSOR (Thailand) Co. Ltd
100 100 100 100 40 100 100 100 100 50 55 100 98.5
VALEO EQUIPEMENTS ELECTRIQUES MOTEUR
VALEO CABLAGGI E COMMUTAZIONE
S.r.l. (Italy)
VALEO SERVICE EASTERN EUROPE Sp.zo.o. (Poland)
NURSAN OK (Turkey)
VALEO BOUZNIKA(Morocco)
VALEO ELECTRICALSYSTEMS, INC.
DELMEX DE JUAREZ S. de R.L. de CV CIBIE ARGENTINA S.A. VALEO SAMSUNG
THERMAL SYSTEMSCo. Ltd
FAW-VALEO CLIMATE CONTROL SYSTEMS Co. Ltd
VALEO COMPRESSOR CLUTCH (Thailand) Co. Ltd
100 100 100 100 40 100 100 100 10050
VALEOCOMPRESSORKOREA Co. Ltd
100
36.5 97.3
VALEO SECURITE HABITACLE
CABLAUTO S.r.l. (Italy)
VALEO VYMENIKY TEPLA S.r.o.
(Czech Republic)
100VALEO
AUTOSYSTEMYSp.zo.o. (Poland)
VALEO CABLAJE S.r.l. (Romania)
CABLEA TUNISIE S.A.
VALEO CLIMATECONTROL CORP.
VALEO SISTEMAS ELECTRONICOS S. de R.L. de CV
NANJING VALEO CLUTCH Co. Ltd PT VALEO AC INDONESIA
100 100
100
100 100 100 100 100 100 55 49
VALEO SYSTEMES D’ESSUYAGE
CAVISUD S.r.l. (Italy)
VALEO AUTOKLIMATIZACE S.r.o.
(Czech Republic)
VALEO ELECTRICAL CONNECTIVE SYSTEMS
S.r.l. (Romania)
SOCIETE TUNISIENNE DE CABLAGES - "STC"
VALEO SYLVANIA LLCVALEO CLIMATE CONTROL
DE MEXICO SA de CV
VALEO SHANGHAI AUTOMOTIVEELECTRIC MOTORS & WIPER
SYSTEMS Co. Ltd100 100
100
100VALEO
COMMUTAZIONE S.r.l (Italy)100
100100 100 50 100 55
VALEO PLASTIC OMNIUM S.N.C.
VALEO ENGINE COOLING UK Ltd
(UK)
VALEO SERVICE BENELUX B.V. (Netherlands)
VALEO SERVICE ITALIA S.p.a.
VALEO MATEUR (Tunisia)
VALEO SYLVANIA ILUMINACIÓN S. de R.L. de CV
SHANGHAI VALEO AUTOMOTIVEELECTRICAL SYSTEMSCompany Limited
50 100
100
99.9
100 100 100 50 50
VALEO VISION
VALEO ESPAÑA S.A.
VALEO COMPRESSOR EUROPE S.r.o.
(Czech Republic)VALEO EMBRAYAGES
TUNISIE SA TELMA RETARDER INC.
TELMA RETARDER DE MEXICO SA de CV
HUADA AUTOMOTIVE AIR CONDITIONER Co. Ltd
100
100
100
100 100 100 100 30
VALEO ELECTRONIQUEET SYSTEMES DE LIAISON
VALEO SLOVAKIA S.r.o.(Slovakia) DAV TUNISIE VALEO AFTERMARKET, INC.
VALEO LIGHTING HUBEI TECHNICAL CENTER Co. Ltd
100
100
100
DAV
VALEO SYSTEMS SOUTH AFRICA (Proprietary)
Limited
VALEO SWITCHES & DETECTION SYSTEMS, INC.
TELMA VEHICLE BRAKING SYSTEM (SHANGHAI)
Co. Ltd100
99,8
100
70
VALEO LIAISONS ELECTRIQUES VALEO TERMICO S.A.
(Spain)
VALEO RAYTHEONSYSTEMS, INC.
SHENZHEN VALEO HANGSHENG AUTOMOTIVE SWITCHES AND DETECTION SYSTEMS Co. Ltd
100
50
77.2
75
SC2NVALEO ILUMINACIÓN S.A.
(Spain)
VALEO COMPRESSOR NORTH AMERICA, INC.
VALEO AUTOMOTIVE SECURITY SYSTEMS (WUXI) Co. Ltd
100
100
100
100
VALEO CABLAGE
VALEO PLASTIC OMNIUM S.L.
VALEO FAWER COMPRESSOR (CHANGCHUN) Co. Ltd
100
100
60VALEO ENGINE COOLING
(SHASHI) Co. Ltd100
FOSHAN ICHIKOH VALEO AUTO
LIGHTING SYSTEMS Co. Ltd50
VALEO AUTOMOTIVE TRANSMISSIONS SYSTEMS
(NANJING) Co. Ltd100
VALEO FOUR SEASONS
TELMA RETARDER ESPAÑA S.A.
VALEO SISTEMAS ELECTRICOS S.L.
(Spain)
VALEO MATERIALES DEFRICCIÓN S.A.
(Spain)
50
100
TELMA
VALEO CLIMATIZACIÓN S.A. (Spain)
100
100
VALEO SERVICE
100
100
VALEO SYSTEMES THERMIQUES
100
VALEO FURUKAWA WIRING SYSTEMS
VALEO SISTEMAS DE CONEXION ELECTRICA S.L.
(Spain)
50
100
VALEO SISTEMAS DE SEGURIDAD Y DE
CIERRE S.A. (Spain)
VALEO SYSTEMES DE CONTRÔLE MOTEUR
VALEO SERVICE ESPAÑA S.A
100
100VALEO VIANA
(Portugal)100
CABLAGENS DO AVE (Portugal)
Main Industrial and Commercial Entities
Direct and indirect stakes by country (% of interest 12.31.2006)
Industrial
Commercialization
DEUTSCHLAND GmbH
VALEO WISCHERSYSTEME
GmbH
VALEO SICHERHEITS- SYSTEME GmbH
VALEO KLIMASYSTEME GmbH
VALEO COMPRESSOR EUROPE GmbH
51
2006 Reference document - VALEO 183
InFORMAtIOn On the COMPAny AnD ItS CAPItAL 5Information on subsidiaries and affiliates
ICHIKOH INDUSTRIESLIMITED
29.4
VALEO SERVICE DEUTSCHLAND GmbH
VALEO ENGINE COOLING A.B.
(Sweden)100
VALEO SERVICE UK LIMITED
(UK)
European Union Other European Countries
Africa North America North America South America Asia
France Germany Belgium,UK, Netherlands,
Sweden
Italy, Spain,
Portugal
Hungary, Poland, Czech Republic,
Slovakia
Turkey,Romania
Morocco,Tunisia,
South Africa
United States Mexico Brazil,Argentina
Iran South Korea China Japan India Thailand, Indonesia
VALEO EMBRAYAGES VALEO BELEUCHTUNG VALEO VISION BELGIQUE
VALEO S.p.a. (Italy)
VALEO AUTO-ELECTRIC HUNGARY SPARE
PARTS PRODUCTION LLC (Hungary)
VALEO OTOMOTIV SISTEMLERI
ENDUSTRISI A.S. (Turkey)
VALEO BOUSKOURA (Morocco) VALEO, INC.
VALEO MATERIALES DE FRICCION DE MEXICO
SA de CV
VALEO SISTEMAS AUTOMOTIVOS Ltda
(Brazil)
VALEO ARMCO ENGINE COOLING
Co.
VALEO ELECTRICAL SYSTEMS KOREA Ltd
TAIZHOU VALEO-WENLING AUTOMOTIVE SYSTEMS
Company Limited
VALEO ENGINE COOLING JAPAN Co. Ltd
VALEO FRICTION MATERIALS INDIA
LIMITED
VALEO THERMAL SYSTEMS SALES (Thailand) Co. Ltd
100 100 100 99.9 100 100 100 100 100 100 51 100 100 100 60 74.9
VALEO MATERIAUX DE FRICTION
VALEO SCHLATER UND SENSOREN GmbH
VALEO SERVICE BELGIQUE
VALEO SICUREZZA ABITACOLO
S.p.a. (Italy)
VALEO ELECTRIC AND ELECTRONIC SYSTEMS Sp.zo.o. (Poland)
VALEO OTOMOTIV DAGITIM A.S.
(Turkey)
VALEO FRICTION MATERIALS, INC.
VALEO SISTEMAS ELECTRICOS SA de CV
VALEO EMBRAGUES ARGENTINA S.A.
VALEO PYEONG HWA Co. Ltd
HUBEI VALEO AUTO LIGHTING COMPANY LTD
VALEO UNISIA TRANSMISSIONS K.K.
AMALGAMATIONS VALEO CLUTCH
LIMITED
VALEO SIAM THERMAL SYSTEMS Co. Ltd
(Thailand)100 100 100 99.9 100 100 100 100 100 100 50 100 66 50
VALEO ENGINEERING CENTER (INDIA)PRIVATE LIMITED
100
74.9VALEO SWITCHES &
DETECTION SYSTEMS-VSDS
TELMA RETARDER LIMITED
(UK)
VALEO SISTEMI DI CLIMATIZZAZIONE
S.p.a. (Italy)
NURSAN ED (Turkey)
VALEO AIN SEBAA (Morocco)
VALEO INVESTMENT HOLDINGS, INC.
VALEO TERMICO SA de CV
EMELAR Sociedad Anonima
(Argentina)
VALEO PYEONG HWA DISTRIBUTION Co. Ltd
VALEO AUTOMOTIVE AIR CONDITIONING HUBEI Co. Ltd
VALEO THERMAL SYSTEMS JAPAN CORP.
VALEO COMPRESSOR (Thailand) Co. Ltd
100 100 100 100 40 100 100 100 100 50 55 100 98.5
VALEO EQUIPEMENTS ELECTRIQUES MOTEUR
VALEO CABLAGGI E COMMUTAZIONE
S.r.l. (Italy)
VALEO SERVICE EASTERN EUROPE Sp.zo.o. (Poland)
NURSAN OK (Turkey)
VALEO BOUZNIKA(Morocco)
VALEO ELECTRICALSYSTEMS, INC.
DELMEX DE JUAREZ S. de R.L. de CV CIBIE ARGENTINA S.A. VALEO SAMSUNG
THERMAL SYSTEMSCo. Ltd
FAW-VALEO CLIMATE CONTROL SYSTEMS Co. Ltd
VALEO COMPRESSOR CLUTCH (Thailand) Co. Ltd
100 100 100 100 40 100 100 100 10050
VALEOCOMPRESSORKOREA Co. Ltd
100
36.5 97.3
VALEO SECURITE HABITACLE
CABLAUTO S.r.l. (Italy)
VALEO VYMENIKY TEPLA S.r.o.
(Czech Republic)
100VALEO
AUTOSYSTEMYSp.zo.o. (Poland)
VALEO CABLAJE S.r.l. (Romania)
CABLEA TUNISIE S.A.
VALEO CLIMATECONTROL CORP.
VALEO SISTEMAS ELECTRONICOS S. de R.L. de CV
NANJING VALEO CLUTCH Co. Ltd PT VALEO AC INDONESIA
100 100
100
100 100 100 100 100 100 55 49
VALEO SYSTEMES D’ESSUYAGE
CAVISUD S.r.l. (Italy)
VALEO AUTOKLIMATIZACE S.r.o.
(Czech Republic)
VALEO ELECTRICAL CONNECTIVE SYSTEMS
S.r.l. (Romania)
SOCIETE TUNISIENNE DE CABLAGES - "STC"
VALEO SYLVANIA LLCVALEO CLIMATE CONTROL
DE MEXICO SA de CV
VALEO SHANGHAI AUTOMOTIVEELECTRIC MOTORS & WIPER
SYSTEMS Co. Ltd100 100
100
100VALEO
COMMUTAZIONE S.r.l (Italy)100
100100 100 50 100 55
VALEO PLASTIC OMNIUM S.N.C.
VALEO ENGINE COOLING UK Ltd
(UK)
VALEO SERVICE BENELUX B.V. (Netherlands)
VALEO SERVICE ITALIA S.p.a.
VALEO MATEUR (Tunisia)
VALEO SYLVANIA ILUMINACIÓN S. de R.L. de CV
SHANGHAI VALEO AUTOMOTIVEELECTRICAL SYSTEMSCompany Limited
50 100
100
99.9
100 100 100 50 50
VALEO VISION
VALEO ESPAÑA S.A.
VALEO COMPRESSOR EUROPE S.r.o.
(Czech Republic)VALEO EMBRAYAGES
TUNISIE SA TELMA RETARDER INC.
TELMA RETARDER DE MEXICO SA de CV
HUADA AUTOMOTIVE AIR CONDITIONER Co. Ltd
100
100
100
100 100 100 100 30
VALEO ELECTRONIQUEET SYSTEMES DE LIAISON
VALEO SLOVAKIA S.r.o.(Slovakia) DAV TUNISIE VALEO AFTERMARKET, INC.
VALEO LIGHTING HUBEI TECHNICAL CENTER Co. Ltd
100
100
100
DAV
VALEO SYSTEMS SOUTH AFRICA (Proprietary)
Limited
VALEO SWITCHES & DETECTION SYSTEMS, INC.
TELMA VEHICLE BRAKING SYSTEM (SHANGHAI)
Co. Ltd100
99,8
100
70
VALEO LIAISONS ELECTRIQUES VALEO TERMICO S.A.
(Spain)
VALEO RAYTHEONSYSTEMS, INC.
SHENZHEN VALEO HANGSHENG AUTOMOTIVE SWITCHES AND DETECTION SYSTEMS Co. Ltd
100
50
77.2
75
SC2NVALEO ILUMINACIÓN S.A.
(Spain)
VALEO COMPRESSOR NORTH AMERICA, INC.
VALEO AUTOMOTIVE SECURITY SYSTEMS (WUXI) Co. Ltd
100
100
100
100
VALEO CABLAGE
VALEO PLASTIC OMNIUM S.L.
VALEO FAWER COMPRESSOR (CHANGCHUN) Co. Ltd
100
100
60VALEO ENGINE COOLING
(SHASHI) Co. Ltd100
FOSHAN ICHIKOH VALEO AUTO
LIGHTING SYSTEMS Co. Ltd50
VALEO AUTOMOTIVE TRANSMISSIONS SYSTEMS
(NANJING) Co. Ltd100
VALEO FOUR SEASONS
TELMA RETARDER ESPAÑA S.A.
VALEO SISTEMAS ELECTRICOS S.L.
(Spain)
VALEO MATERIALES DEFRICCIÓN S.A.
(Spain)
50
100
TELMA
VALEO CLIMATIZACIÓN S.A. (Spain)
100
100
VALEO SERVICE
100
100
VALEO SYSTEMES THERMIQUES
100
VALEO FURUKAWA WIRING SYSTEMS
VALEO SISTEMAS DE CONEXION ELECTRICA S.L.
(Spain)
50
100
VALEO SISTEMAS DE SEGURIDAD Y DE
CIERRE S.A. (Spain)
VALEO SYSTEMES DE CONTRÔLE MOTEUR
VALEO SERVICE ESPAÑA S.A
100
100VALEO VIANA
(Portugal)100
CABLAGENS DO AVE (Portugal)
Main Industrial and Commercial Entities
Direct and indirect stakes by country (% of interest 12.31.2006)
Industrial
Commercialization
DEUTSCHLAND GmbH
VALEO WISCHERSYSTEME
GmbH
VALEO SICHERHEITS- SYSTEME GmbH
VALEO KLIMASYSTEME GmbH
VALEO COMPRESSOR EUROPE GmbH
51
2006 Reference document - VALEO184
InFORMAtIOn On the COMPAny AnD ItS CAPItAL5 Person responsible for the registration document
Person responsible for the registration document
Person responsible for the information provided in the registration document
Thierry Morin, Chairman and Chief Executive Officer of Valeo.
Declaration by the person responsible for the registration document
I hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in the registration document
is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import.
I obtained a statement from the Statutory Auditors at the end of their engagement affirming that they have read the whole “document
de référence” (registration document), of which this document is a free translation from the original, and examined the information about
the financial position and the accounts contained therein.
The Statutory Auditors issued an observation in their report on the consolidated financial statements for the year ended December 31,
2004, presented on page 103 of the registration document filed with the Autorité des marchés financiers on March 29, 2005 under
number D.05-0290. This observation concerned the change in method of accounting for retirement commitments presented in Note 1.2
to the consolidated financial statements.
Paris, March 29, 2007
Thierry Morin
Chairman and Chief Executive Officer
Key figures p. 2
The English language version of this report is a free translation from the original, which was prepared in French. All possible care has
been taken to ensure that the translation is an accurate presentation of the original. However, in all matters of interpretation, views or
opinions expressed in the original language version of the document in French take precedence over the translation.
1 ACTiViTy p. 7
History p.8
TheGroup p.10
Geographicalpresence p.25
Competitivecontext p.26
Keyeventsin2006 p.26
Recenteventsandoutlook p.31
2 MANAgEMENT REpORT p. 33
Accountingmethods p.34
Statementofincome p.34
Maininvestmentsoverthepastthreeyears p.36
Changeinstockholders’equity p.37
provisions p.38
Cashflowsanddebt p.39
Commitments p.39
Remunerationofcorporateofficersanddirectors p.39
Risksanduncertainties p.41
Informationlikelytobeimpactedbyapublictenderoffer p.43
Claimsandlitigation p.44
Outlook p.44
Subsequentevents p.45
parentcompanyfinancialstatements p.45
EnvironmentalIndicators p.45
SocialIndicators p.55
3 CONsOLiDATED FiNANCiAL sTATEMENTs 2006 p. 69
Consolidatedstatementsofincome p.71
Consolidatedbalancesheets p.72
Consolidatedstatementsofcahflows p.73
Statementsofrecognizedincomeandexpenses p.74
Statementofchangesinstockholders’equity p.75
Notestoconsolidatedfinancialstatements p.76
StatutoryAuditors’reportonthe2006IFRSconsolidatedfinancialstatements p.127
4 CORpORATE gOVERNANCE p. 129
RapportoftheChairmanoftheBoardofDirectorsrelatingtotheconditionsofpreparationandorganizationoftheBoard’swork,thepossiblelimitationstothepowersoftheChiefExecutiveOfficerandtheinternalcontrolproceduresputinplacebytheValeoGroup p.130
CompositionoftheBoardofDirectorsatDecember31,2006 p.139
StatutoryAuditors’ReportonthereportoftheChairmanoftheBoardofDirectors p.142
5 iNFORMATiON ON ThE COMpANy AND iTs CApiTAL p. 145
Generalinformationabouttheissuer p.146
FeespaidbythegrouptotheAuditorsandmembersoftheirnetworks p.166
GeneralinformationabouttheCompany’scapital p.167
Currentownershipstructure p.172
MarketfortheCompany’ssecurities p.176
Investorrelations p.178
Informationonsubsidiariesandaffiliates p.181
personresponsiblefortheregistrationdocument p.184
VAL004_DRF06_VA_COUV_PLANCHE.ind2 2 19/04/07 20:13:13
VALE
O R
EFER
ENCE
DO
CUM
ENT
2006
Reference document
2006
43, rue Bayen - 75848 Paris cedex 17, FranceTel. : 33 (0)1 40 55 20 20 - Fax : 33 (0)1 40 55 21 71Valeo French ”Société Anonyme” with a capital of 232,741,851 euros - 552 030 967 RCS ParisValeo.com
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