Valeo's new medium-term growth plan banks on strong growth in Asia

Global automotive supplier Valeo is aiming to continue and accelerate its growth strategy presented in March 2015, and is setting new financial objectives through to the year 2021.

The Tier 1 supplier is targeting sales of over 27 billion euros, reflecting an average outperformance of more than 7 percentage points for the 2016-2021 period compared to global automotive production, and average annual sales growth in excess of 10%. It has forecast operating margin (as a percentage of sales) of around 9% and free cash flow of 3.7 billion euros over the 2017-2021 period, twice the level recorded over the 2012-2016 period of 2 billion euros.

According to Jacques Aschenbroich, Valeo's chairman and CEO, "By leveraging the growth opportunities in the automotive industry for electrification, autonomous and connected vehicles, as well as new mobility services driven by digital technology, Valeo is embarking on a virtuous circle of profitable growth underpinned by sustained R&D efforts and a selective acquisition policy, allowing us to strengthen our positions on the main markets as well as our technological leadership.

"All four of our Business Groups (Powertrain Systems,  Thermal Systems,  Comfort & Driving Assistance Systems, and Visibility Systems) will leverage this potential, undergoing several waves of growth as these new technologies enter production."

Asia to power future growth
Valeo, at present, has a diversified customer and geographic positioning with an increasing footprint in high-growth potential regions, mainly in Asia. Over the next five years, the supplier projects around 37% of original equipment sales to be generated in Asia by 2021, versus 27% in 2016.

Driven by growth in the order intake due to the success of its innovations (half of the order intake⁾ in 2016), the Group aims to accelerate organic growth on the back of higher content per vehicle and a better product mix, to improve profitability and increase free cash flow.

According to Valeo, all of its four business groups will leverage this potential stemming from the new opportunities within the automotive industry and will undergo several waves of growth as these new technologies enter production.

Accelerating organic growth and boosting operational excellence
Leveraging the record level of its order intake over the past few years, Valeo is looking to achieve average annual organic growth more than 7 percentage points above global automotive production on the back of its innovation-fueled product mix.

Assuming that global automotive production increases by an annual average of 2.3% over the next five years, sales would therefore rise to more than 22.5 billion euros in 2019 and would exceed 27 billion euros by 2021 (versus 16.5 billion euros in 2016).

The company will aim to leverage this sales growth to improve profitability, and has set a target for operating margin (as a percentage of sales) of around 8.5% and 9% for 2019 and 2021, respectively, versus 8.1% in 2016.

Valeo is aiming to double its free cash flow generation to 3.7 billion euros over the 2017-2021 period, versus 2 billion euros over the 2012-2016 period.

Within the scope of its medium-term plan characterised by strong growth in production capacity, particularly in Asia, Valeo is aiming to achieve a return on capital employed (ROCE) of around 30% and a return on assets (ROA) of over 20%.

In 2016, the Valeo Group generated sales of 16.5 billion euros and invested over 11% of its original equipment sales in R&D. Valeo has 155 plants, 20 research centres, 38 development centres and 15 distribution platforms, and employs 91,800 people in 32 countries worldwide including India.