2006 Reference document (PDF) - Valeo

2006 

Reference document

Key figures p. 2 

1 ACTiViTy p. 7 

History p. 8 

The Group p. 10 

Geographical presence p. 25 

Competitive context p. 26 

Key events in 2006 p. 26 

Recent events and outlook p. 31 

2 MANAgEMENT REpORT p. 33 

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 

3 CONsOLiDATED FiNANCiAL 

sTATEMENTs 2006 p. 69 

Consolidated statements of income p. 71 

Consolidated balance sheets p. 72 

Consolidated statements of cah 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. 127 

4 CORpORATE gOVERNANCE p. 129 

Rapport 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 

5 iNFORMATiON 

ON ThE COMpANy 

AND iTs CApiTAL p. 145 

General information about the issuer p. 146 

Fees paid by the group to the Auditors 

and members of their networks p. 166 

General information about 

the Company’s capital p. 167 

Current ownership structure p. 172 

Market for the Company’s securities p. 176 

Investor relations p. 178 

Information on subsidiaries 

and affiliates p. 181 

person responsible 

for the registration document p. 184

2006 Reference document 

Group profile 

Fully 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 - VALEO

2 

Key figures 

Key figures 

SaleS by region 

In million euros and in % of sales 

SaleS by market (2006) 

In % of sales 

2006 Reference document - VALEO 

9,018 9,736 9,970 

Europe 

3% 

10% 

16% 

71% 

2004* 

North America 

5% 

12% 

14% 

69% 

2005* 

Asia and others 

5% 

13% 

13% 

69% 


South America 

* In accordance with IFRS, all 2004 and 2005 figures are restated mainly to account 

for non strategic activities 

18% 

Aftermarket 

82% 

OEM

groSS margin 

In % of sales 

17.2% 

2004* 

16.0% 15.4% 

2005* 




operating income 

In % of total operating revenues 

3.5% 3.3% 

2004* 

2005* 

2.7% 




17.3% 17.1% 

S1-2004* 

S2-2004* 

16.3% 15.8% 15.9% 

S1-2005* 

S2-2005* 

Key figures 

S1-2006 

14.9% 

S2-2006 



4.4% 

S1-04* 

2.7% 

S2-04* 

3.2% 3.3% 3.2% 

S1-05* 

S2-05* 

S1-06 

2.1% 

S2-06 




Key figures 

reSearch and development 

In % of total operating revenues 

net income 


2004* 

In million euros and in % of total operating revenues 

240** 

2004* 

6.4% 6.5% 6.6% 

2005* 




142 

2005* 

161 

2.6% 1.4% 1.6% 




** Including an exceptional tax gain of 83 million euros 

baSic earningS per Share 

In euros 

2.92 

2004* 

1.80 

2005* 

2.10 



for non strategic activities

net financial debt 

In million euros and in % of equity 

497 

01/01/2005 

1,080 

12/31/2005 

968 

27% 63% 55% 

12/31/2006 

Key figures 


6 

Key figures 


Activity 

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 

1 


ACTiviTy 

1 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: 

1987 

• Acquisition of Neiman (security systems) and its Paul Journée 

subsidiary (wiper systems). 

• Acquisition of Chausson’s heat exchanger business. 

1988 

• Acquisition 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). 

1989 

• Acquisition 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. 


Throughout the 1990s 

The 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: 

1995 

• Acquisition of Siemens’ thermal business in Germany. 

1996 

• Acquisition 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). 

1997 

• Creation 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. 

1998 

• 

Acquisition of the Electrical Systems activity of ITT Industries.

1999 

• Acquisition of a division of Mando (electrical systems in South 

Korea). 

2000 

• Creation 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 

millennium 

In 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 2004 

Following 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 

ACTiviTy 

History 

1 

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 2005 

Guided 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. 


10 

ACTiviTy 

1 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%. 

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 


in 2006 

• Valeo 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. 

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;

• 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 

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 

ACTiviTy 

The Group 

1 

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 coordinates 

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. 

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 Park4U TM • 

• 

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; 

2006 Reference document - VALEO 11

12 

1 The 

ACTiviTy 

Group 

the lane departure warning system, Lanevue TM • 

, 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 Optiveo TM • 

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); 


• 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; 

XLED TM • 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 MicroOptics TM • 

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;

• 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; 

• engine control units; 

• electric motor drives; 

• emission control systems and components; 

• ignition components; 

• injectors; 

• sensors. 

2.2.2. Electrical Systems 

ACTiviTy 

The Group 

1 

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 UltimateCooling TM 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 UltimateCooling TM • 

• 

, 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 


14 

1 The 

ACTiviTy 

Group 

the new CO 2 refrigerant fluid (replacing R134A) has been 

developed. In addition, Valeo is assessing alternative refrigerants 

and their impact on current systems; 

Themis TM • , 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 


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

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 

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 

ACTiviTy 

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1 

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. 

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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Group 

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; 


• 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.

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 

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1 

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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1 The 

ACTiviTy 

Group 

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.

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 

ACTiviTy 

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1 

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 


20 

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Group 

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 

Production System 

Involvement of Personnel 

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.

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 

ACTiviTy 

The Group 

1 

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 


22 

1 The 

ACTiviTy 

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; 


− 

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.

• 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. 

ACTiviTy 

The Group 

1 

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. 


24 

1 The 

ACTiviTy 

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 


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.

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 

Valeo presence by region at 31/12/2006 

ACTiviTy 

Geographical presence 

1 

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. 

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 

USA, Mexico 

14 12 7 200 

South America 

Argentina, Brazil 

10 1 3 600 

Asia 26 11 7 500 

China, South Korea, india, Japan, Thailand, Malaysia, 

indonesia, iran 

Africa 

South Africa, Morocco, Tunisia, Egypt 

9 2 9 700 

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 

12 6 6 00 

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). 


26 

1 Competitive 

ACTiviTy 

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; 

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 


• 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). 

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 Park4U TM • 

• 

• 

• 

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

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 

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 Park4U TM • 

automatic park assist system automatically 

parks a car in less than 15 seconds. Using ultrasound technology, 

it makes city driving safer and more comfortable. 

ACTiviTy 


1 

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 customerspecific 

range saw Valeo Service signing a contract for wiper 

blades with Halfords, a major UK chain selling replacement 

parts. 

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 Lanevue TM • 

• 

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. 


2 

1 Key 

ACTiviTy 

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). 


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 Lo CO Motion research project : 

w 2 

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

Alphand victories in all-terrain rallies: he won Dakar 2006 in 

Africa, the “Por las Pampas” in Argentina, and in the UAE, the 

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% 

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- 

ACTiviTy 


1 

Dubai Desert Challenge; he was also in winning positions for 

the Le Mans Endurance Series. 

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. 

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. 


30 

1 Key 

ACTiviTy 

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. 


• 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).

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 

LOwCO2MOTION TM • 

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 

ACTiviTy 

Recent events and outlook 

1 

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. 


32 

1 

ACTiviTy 


ManageMent 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 

2 


34 

2 Accounting 

MAnAgEMEnt REPORt 

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. 

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 

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%), 

(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. 


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. 

activity as defined in note 1.19 of the consolidated financial 

statements. 

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%

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 

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 

(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 


Statement of income 

2 

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). 

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. 

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. 


36 

2 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 

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 

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 


(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. 

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%. 

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 Chinabased 

motors and clutches operations.

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: 

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. 

(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. 


Change in stockholders' equity 

2 

• 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. 

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. 

(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. 


38 


2 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 

Dividends per share paid out for the last three years are analyzed in the table below: 

Year 

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 


gross 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* 

Eligible for the 50% 

tax allowance provided 

for in article 158-3-2 of 

the French general tax 

Code (Code générale des 

86 

2004 na 1.10 

impôts). 91 

2005 na 1.10 84 

* Applicable to shareholders eligible for the 50% tax credit. 

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.

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. 

7. Commitments 

The Group's main commitments break down as follows at December 31: 


Commitments 

(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. 

2 

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 officers 

The 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. 


40 

2 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. Directors 

Directors 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.

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. 

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. 


Risks and uncertainties 

2 

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. 

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 


42 

2 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 


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. 

9.4. 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. 


9.2.4. 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. 

9.3.2. 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. 

9.4.2. 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

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. 

10. Information likely to be impacted 

by a public tender offer 


Information likely to be impacted by a public tender offer 

2 

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. 

10.1 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% 


44 


2 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 

11. Claims and litigation 

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. 

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.

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. 


Environmental Indicators 

2 

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. 

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; 

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. 

• 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. 


46 

2 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 

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. 


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. 

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 

585 

2004 

646 

2005 

R&D expenditure in milllions of euros 

661 


2.3. Internal environmental management 

organization 

The Risk, Insurance and Environment Department works hand-inhand 

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.

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. 



2 

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 

2004 

Environment 

51 

59 58 

116 

2005 

Occupational health 

and safety 

71 

46 46 


Safety 

of equipment 

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. 

110 

42 

Security 

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. 


48 



Indicators 

numbeR of iso 14001 and ohsas 18001 

ceRtified sites 

2 

1998 

10 

1999 

ISO 14001 

27 

2000 

48 

2001 

67 

2002 

OSHAS 18001 


85 

2 

2003 

102 

6 

2004 

117 

15 

2005 

127 

72 


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. 

total numbeR of houRs of enviRonmental 

tRaining 

38 979 

2004 

36 938 

2005 

37 386 


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 

5 032 

514 

2004 

3 262 

303 

2005 

Total volume of water consumed/sales (m 3 /millions of euros) 

Total volume of water consumed (m 3 thousands) 

3 463 

341 


Representativeness: 2004: 98.0% 2005: 99.7% 2006: 96.9% 

Figures for 2004 and 2005 have been rectified on the above graph 

following the discovery of a reporting error by a site. 

eneRgy consumption 

1 739 

179 

2004 

1 814 

171 

2005 

Total energy consumption/sales (MWh/millions of euros) 

Total energy consumption (GWh) 

1 868 

185 


Representativeness: 2004: 97.1% 2005: 98.7% 2006: 96.2%

ReakdoWn of eneRgy consumption 

3% 

6% 

2004 

Electricity 

1% 

2% 

33% 34% 34% 

58% 63% 64% 

2005 

Gas 

Fuel oil 

2% 


Other 

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. 



2 

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 

2004 

5 198 

2005 

use of packaging mateRials 

48 606 

5 503 

2004 

67 239 

6 741 

2005 

Total packaging materials used/sales 

(tonnes/millions of euros) 

Total packaging materials used (tonnes) 

6 150 


63 248 

6 669 




50 



Indicators 

bReakdoWn of packaging mateRials used 

44% 

48% 

8% 

2004 

Plastics 

2005 

Cardboard 


1% 

29% 

53% 

17% 

Wood 

1% 

32% 

57% 

10% 


Other 

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 

1 469 

153 

2004 

1 171 

109 

2005 

Use of chlorinated solvents/sales (kg/millions of euros) 

Use of chlorinated solvents (tonnes) 

1 096 

107 



use of heavy metals 

274 

28 

2004 

Use of heavy metals/sales (kg/millions of euros) 

Use of heavy metals (tonnes) 

296 

2005 

294 

28 29 



use of caRcinogenic, mutagenic and RepRotoxic 

(cmR) substances 

1 062 

107 

2004 

1 049 

2005 

Use of CMR substances/sales (kg/millions of euros) 

Use of CMR substances (tonnes) 

1 138 

98 111 



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 

1 009 

102 

2004 

695 

2005 


Volume of industrial effluent emissions/sales (m³/millions of euros) 

Volume of industrial effluent emissions* (m³ thousands) 

65 

748 


76 

heavy metal content in effluent 

365 

0,04 

2004 



2005 

Heavy metal content in effluent/sales (kg/millions of euros) 

Heavy metal content in effluent (kg) 


2 


voc atmospheRic emissions 

1 242 

143 

2004 

208 

0,02 

2005 

278 

0,03 

VOC atmospheric emissions/sales (kg/millions of euros) 

VOC atmospheric emissions (tonnes) 



tce atmospheRic emissions 

536 

54 

2004 

1 708 

162 

465 

1 489 

TCE atmospheric emissions/sales (kg/millions of euros) 

44 

2005 

TCE atmospheric emissions (tonnes) 

153 

327 


Representativeness: 2004: 96.5% 2005: 99% 2006: 96.6% 

32 


52 



Indicators 

lead atmospheRic emissions 

130 

13 

2004 

Lead atmospheric emissions/sales (g/millions of euros) 

Lead atmospheric emissions (kg) 



2005 

8. Reducing waste production 

72 

7 

52 

5 


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 

123 216 

13 

2004 

132 725 

12 

2005 

Total quantity of waste produced/sales (tonnes/millions of euros) 

Total quantity of waste produced (tonnes) 

138 772 



14 

type of Waste 

83% 

17% 

2004 

Hazardous waste 

Waste Re-use Rate 

83% 

17% 

2005 

83% 

17% 


Non-hazardous waste 

59% 71% 72% 

2004 

2005 



9. Combating climate change 

Carbon dioxide (C0 2) 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 C0 2 

emissions. 

In 2001 the Group took steps to quantify emissions caused by the 

combustion of fossil fuels. C0 2 emissions were calculated based 

on energy consumption using the emission coefficients of the 

Intergovernmental Panel on Climate Change. 

The quantity of C0 2 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); 

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 



2 

• annually, the entire Valeo Group emits the equivalent of less 

than 5% of the C0 2 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 CO 2 transport-related emissions. 

co 2 atmospheRic emissions 

112 195 

12 

2004 

121 157 

11 

2005 

Greenhouse gas emissions/sales (tonnes equiv C02/millions of euros) 

Greenhouse gas emissions (tonnes equiv C02) 

123 971 


Representativeness: 2004: 94.7% 2005: 100% 2006: 96.9% 

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. 

12 


54 



Indicators 

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. 

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 


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. 

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

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. 

13. Financial data 

Scope 


Social indicators 

2 

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. 

2004 2005 2006 

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 


Provisions and guarantees for environmental risks 7,580 8,054 3,091 


Costs incurred by corporate departments to prevent any adverse environmental 

impacts of the business 14,140 13,861 16,417 


Investments made (excluding pollution elimination costs) to prevent any adverse 

environmental impacts of the business 5,624 7,205 4,244 


Specific pollution elimination costs 869 1,467 1,240 


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. 


56 

2 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. 

total headcount excl. fRance 


Western 

Europe 

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. 

Eastern 

Europe Africa 

1995 2000 2005 2006* 

14,125 50,002 50,273 50,867 

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 % 


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).

1.1.3. Generational turnaround 

peRmanent WoRkfoRce by age bRacket* 

79 

531 

58 

2 Social 


indicators 

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 

* Including VMA. 

16.8% 24.7% 5.8% 31.5% 9.3% 11.9% 

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 


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 Europe 

Eastern 

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% 


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 


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).

ReakdoWn of 2006 depaRtuRes by geogRaphic aRea 

Western 

Europe 

Eastern 

Europe Africa 

north 

America 



2 

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 

* 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 

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 

48.8% 2.7% 0.3% 40.3% 0.6% 7.3% 

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. 

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 


60 

2 Social 


indicators 

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% 


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%.

3. Equality between men and women in the workplace 

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 

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% 


peRcentage of Women hiRed undeR peRmanent contRacts oveR thRee yeaRs 

Engineers and managers 

Technicians, 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% 


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. 

2 

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). 

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. 


62 

2 Social 


indicators 

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. 

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 


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. 

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.

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%). 

6. Remuneration 

6.1. Changes in remuneration and social charges 

(In millions euros) 2004 (1) 

2 

10.8% of the training hours provided within the Group in 2006 

were dedicated to safety, up 0.7 point on 2005. 

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) France 

Europe 

(excl. France) 

Outside 

Europe 

Payroll excluding social charges 664 548 463 


total payroll 971 705 593 

Charge rate 46.2% 28.6% 28.1% 

* Including VMA 


64 

2 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. 

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. 


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 


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.

ReakdoWn of houRs by type of tRaining in 2006 

24.90% 

Other 

1.50% 

Environment 

2.00% 

Communication 

27.80% 

Technical - Product 

5.80% 

Company 

culture 

peRcentage of employees tRained peR socio-pRofessional categoRy 

9.50% 

Integration 

9.50% 

Languages 

5.20% 

Management 

2.90% 

Office systems 

10.80% 

Safety 



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% 


aveRage numbeR of tRaining houRs peR socio-pRofessional categoRy 

2 

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 


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. 


66 

2 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. 

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. 

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. 


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). 

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). 

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.

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; 



2 

• 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. 


68 

2 



consolidated 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 

3 


70 

3 

CoNSolIdAted FINANCIAl StAtemeNtS 2006 


Consolidated statements of income 

(In millions of euros) Notes 


Consolidated statements of income 

2006 2005 

Restated (1) 

3 

2004 

Restated (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 


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 


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 


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. 


72 

3 Consolidated 


balance sheets 

Consolidated balance sheets 

(In millions of euros) Notes 

ASSETS 



Restated (1) 

2004 

Restated (1) 

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.

Consolidated 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). 


3 


74 

3 Statements 


of recognized income and expenses 

Statements of recognized income and expenses 




Restated (1) 

2004 

Restated (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.


Statement of changes in stockholders’ equity 

Statement of changes in stockholders’ equity 

Number 

of shares (In millions of euros) 

82,133,728 

Share 

capital 

Additi- 

onal 

paid-in 

capital 

Translationadjustment 

Retained 

earnings 

Stockholders’ 

equity 

Minority 

interests 

3 

Stockholders’ 

equity 

including 

minority 

interests 

Stockholders’ 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 

Income and expenses recognized 

- - - 5 5 - 5 

directly through equity - - 9 (41) (32) (3) (35) 

Net income - - - 240 240 8 248 

other movements (3) Stockholders’ equity at 

- - - (24) (24) (38) (62) 

83,709,024 December 31, 2004 (Restated) (1) Total impact of financial 

251 1,617 9 (96) 1,781 57 1,838 

(1,037,804) instruments (iAS32, iAS39) 


- - - 27 27 - 27 

82,671,220 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 

directly through equity - - 131 (33) 98 4 102 

Net income - - - 142 142 6 148 

other movements (3) Stockholders’ equity at 

- - - (48) (48) (19) (67) 

76,702,653 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 

directly through equity - - (66) 14 (52) (3) (55) 

Net income - - - 161 161 5 166 

other movements 


- - - (2) (2) (4) (6) 

76,893,913 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. 



76 

3 


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 


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. 



3 

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 


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. 


78 

3 Notes 


to consolidated financial statements 

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 


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

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. 



3 

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 

Land is not depreciated. 

3 to 8 years 

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 


80 

3 Notes 



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 riskfree 

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 noncurrent 

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 loans 

Bonds 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. 

▪ OCEANE 

Bonds 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.

▪ Short-term bank debt 

This 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 derivatives 

Changes 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 derivatives 

The 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 derivatives 

The 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 



3 

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 


82 

3 Notes 



(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. 


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.

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 

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 

the components of the income statement caption “Non-strategic activities” are as follows: 



3 

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. 

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. 


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: 


income from non-strategic activities attributable to equity holders of the 

company 

2006 2005 2004 

• Basic earnings per share (In euros) 

0.47 (0.15) 0.10 


0.47 (0.14) 0.09 


84 

3 Notes 



Cash flows from non-strategic activities are analyzed as follows: 


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.



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: 


Disposal of 

Electric Motors 

& Actuators 

2006 2005 2004 

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 

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. 

3 

• 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%. 

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. 


86 

3 Notes 



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 

3.2 - Personnel expenses 


• 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. 

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 personnelrelated 

expenses: 


Wages and salaries (1) 1,794 1,739 1,634 


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 

3.4 - other income and expenses 

“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. 


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)

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 losses 

Asset 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 fiveyear 

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 

3.5 - Cost of net debt 



3 

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. 

▪ Restructuring 

Restructuring 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. 


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 


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. 


88 

3 Notes 



“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. 

3.7 - Income taxes 

3.7.1 - income tax expense 


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). 


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

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 


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.; 

3 

• 

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. 


90 

3 Notes 



the main goodwill balances are broken down by group of CGUs as follows: 

At december 31 


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 




gross value Amortization 

and impairment 

losses 

2006 2005 2004 

Net value Net value Net value 

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 

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 

Total

2005 



licenses 


Capitalized 

development 

expenditure 


Other 

intangible 

assets 

gross at January 1, 2005 94 41 325 27 487 


Net at January 1, 2005 29 11 222 19 281 


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 




licenses 

Capitalized 

development 

expenditure 

Other 

intangible 

assets 

gross at January 1, 2006 119 96 458 171 844 


Net at January 1, 2006 32 56 279 155 522 


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 



gross 

carrying 

amount 

Depreciation 

and 

impairment 

losses 

2006 2005 2004 

Net 

carrying 

amount 

of which 

finance 

leases 

Net 

carrying 

amount 

of which 

finance 

leases 

Net 

carrying 

amount 

Total 

Total 

3 

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. 


92 

3 Notes 



Changes in property, plant and equipment over 2004, 2005 and 2006 are analyzed below: 

2004 



Land Buildings plant and 

equipment 

Specific 

tooling 

Other Fixed assets 

in progress 

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 



equipment 

Specific 

tooling 


in progress 

gross at January 1, 2005 155 934 2,977 1,021 489 192 5,768 


and impairment (10) (478) (2,097) (869) (369) - (3,823) 

Net at January 1, 2005 145 456 880 152 120 192 1,945 


disposals (10) (13) (8) (2) - (12) (45) 

Available-for-sale 

assets (1) (2) (9) - - - - (11) 


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. 

Total 

Total




equipment 

Specific 

tooling 




in progress 

gross at January 1, 2006 178 1,012 3,346 1,155 538 205 6,434 


and impairment (11) (554) (2,413) (1,000) (415) - (4,393) 

Net at January 1, 2006 167 458 933 155 123 205 2,041 


disposals - (1) (1) (2) (3) (8) (15) 

Available-for-sale assets (1) - (9) - - - - (9) 


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: 


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 


Ownership interest 

(%) 

Equity in net assets 


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. 

Total 

3 


94 

3 Notes 



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: 



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). 

2004 2005 Recognized Other 

through movements 


income 

(1) 


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 

of which: 

70 91 9 (5) 95 

• 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.


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: 


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 


4.8 - Accounts and notes receivable 


3 

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. 


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). 


96 

3 Notes 



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 stock subscription plans 

year in which the plan was set up Number of shares 

subject to options 


Exercise price 

of options (1) 

(In euros) 

Number of options 

outstanding 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 price 

of options (1) 

(In euros) 


outstanding 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. 

▪ 

Terms and conditions of free share awards 

year in which plan was set up Number of free 

shares granted 

2005 600,000 (1) 

2006 63,000 (2) 

Number of shares 

not yet issued at 

December 31, 2006 

year of vesting 

541,870 2008 

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

movements on the stock option plans can be analyzed as follows: 



2004 2004 


and free shares 

3 

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 





Options not exercised at January 1, 2005 6,476,975 38.23 




options exercised (51,120) 25.69 


Options which can be exercised on December 31, 2005 3,099,668 39.50 

2006 2006 





Options not exercised at January 1, 2006 6,442,405 31.82 




options exercised (69,555) 25.88 


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: 


March November 

type Free shares and Free shares and 

purchase option 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 


98 

3 Notes 

type 



4.9.7 - Minority interests 

Changes in minority interests can be analyzed as follows: 


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 


Free shares and 

purchase option 

2005 2004 2003 

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.

4.10 - Provisions 

Changes in provisions can be analyzed as follows: 


provisions for 

reorganization 

expenses 

provisions for 

pensions and other 

employee benefits 



Other 

provisions 

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 

Actuarial gains and losses recognized 

(5) - (31) (36) 

through equity - 42 - 42 

provisions at December 31, 2004 165 856 277 1,298 

Amounts used during the year 


(103) (89) (91) (283) 

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) Actuarial gains and losses recognized 

(4) (152) (49) (205) 

through equity - 50 - 50 

provisions at December 31, 2005 181 883 490 1,554 

Amounts used during the year 


(82) (62) (107) (251) 

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 

Actuarial gains and losses recognized 

(11) (3) (51) (65) 

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: 

Total 

3 

• 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. 


100 

3 Notes 



4.10.2 - provisions for pensions and 

other employee benefits 

▪ Description of the plans in force within the group 

The 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 assumptions 

The 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: 


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: 


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.

▪ 

Breakdown of obligations 

At december 31, 2004 


France Other 

European 

countries 



North 

America 

Other 

countries 

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 


France Other 

European 

countries 

North 

America 

Other 

countries 




Deficit 200 317 329 48 894 


provisions recognized at December 31, 2005 169 317 349 48 883 

At december 31, 2006 


France Other 

European 

countries 

North 

America 

Other 

countries 




Deficit 203 298 224 48 773 


provisions recognized at December 31, 2006 177 298 225 48 748 

Total 

Total 

Total 

3 


102 

3 Notes 



▪ 

Movements in provisions 



France Other 

European 

countries 

North 

America 

Other 

countries 

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 


equity 7 40 15 (12) 50 


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 



10 10 10 9 39 


8 14 31 3 56 


6 - (127) (2) - (121) 


- (2) (14) (1) (17) 


- (2) 21 (3) - 19 

provisions at December 31, 2005 169 317 349 48 883 


equity 3 (4) (28) 2 (27) 


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) 



17 10 7 8 42 


8 14 25 2 49 


5 - (19) - (14) 


- (2) (16) (1) (19) 


(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. 

Total

▪ Movements in obligations 


France Other 

European 

countries 



North 

America 

Other 

countries 

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 



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 


Obligations at December 31, 2005 203 359 526 100 1,188 



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) 


Obligations at December 31, 2006 208 343 429 94 1,074 

▪ 

Movements in plan assets 


France Other 

European 

countries 

North 

America 

Other 

countries 

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 

Total 

Total 

3 


104 

3 Notes 





France Other 

European 

countries 

North 

America 

Other 

countries 

plan assets at January 1, 2005 1 37 148 25 211 


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 - - - - - 


plan assets at December 31, 2005 3 42 197 52 294 


France Other 

European 

countries 

North 

America 

Other 

countries 

plan assets at January 1, 2006 3 42 197 52 294 


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 


plan assets at December 31, 2006 5 45 205 46 301 

▪ 

Breakdown of plan assets 


France Other 

European 

countries 

North 

America 

Other 

countries 

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. 

Total 

Total 

Total



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 



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: 


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 



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. 

3 


106 

3 Notes 



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 

▪ 

Maturities of long-term debt 



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. 

(In millions of euros) 2008 2009 2010 2011 2012 

2013 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 



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 



marketable securities 97 454 488 

Cash 521 495 380 

Cash and cash equivalents 618 949 868

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. 

▪ 

Breakdown of net debt 



3 

▪ Net debt at January 1, 2005 

Application 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. 

(In millions of euros) 2006 2005 

January 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: 



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 


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 


108 

3 Notes 



4.12.2 - Changes in working capital 


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. 

5.1.1 - Reporting by geographical area 



Net sales 

by market 

Net sales by 

production area 

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 “Nonstrategic 

activities” are restated as indicated in note 2.1. 

Total assets Capital expenditure 

for the period (1) 

Number of 

employees 


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 

2005 

9,970 9,970 5,322 647 69,700 

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 

2004 

9,736 9,736 5,428 592 68,600 

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.

total segment assets reconcile to total Group assets as follows: 




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: 


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 

3 


110 

3 Notes 



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: 


(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 risk 

In 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.



the unrealized gain of 6 million euros at december 31, 2006 is broken down as follows by type of metal: 


(In millions of euros) 2006 2005 

Aluminum 4 10 

Processed a l uminum - 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 risk 

income. The impact on income is offset, for the effective portion, 

The Group uses interest rate swaps to convert exchange rates by a symmetrical revaluation of the hedged component of the 

on its debt into either a variable or a fixed rate, either as from debt. The interest rate derivatives used by the Group to hedge 

origination or during the term of the loan. 

its variable-rate debt are not designated as hedging instruments 

The interest rate derivatives used by the Group to hedge against in the meaning ascribed to that term by IAS 39. 

changes in value of its fixed-rate debt are designated as fair value The Group’s financing rate was 4.5% in 2006 (4.6% in 2005). 

hedges under IAS 39. These derivatives are recorded at fair value At December 31, 2006, 82% of long-term debt is at a fixed rate 

in the balance sheet with changes in fair value being taken to (83% at December 31, 2005) 

Fixed-rate position 


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 


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. 

3 


112 

3 Notes 



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 

5.2.5 - Financial instruments 

▪ 

Fair value of financial instruments 



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. 


ASSETS 

Carrying amount Fair value 

Non-current financial assets 24 24 

Accounts and notes receivable 1,834 1,834 

Cash and cash equivalents 618 618 

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 


(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 



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. 




3 


114 

3 Notes 



interest rate derivatives 



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: 



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: 


Rent 53 56 52 

lease commitments in respect of capital leases are as follows: 



Future minimum lease payments 


1 to 5 years 7 10 15 


TOTAL FuTuRE MiNiMuM LEASE pAyMENTS 17 28 31 

of which interest charges 

present value of future lease payments 

(2) (3) (3) 


1 to 5 years 6 9 13 


TOTAL pRESENT VALuE OF FuTuRE LEASE pAyMENTS 16 25 28 


2006

5.3.2 - Other commitments given 

Valeo has also given the following commitments: 




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: 



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 

3 

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. 


116 

3 Notes 



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: 


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). 

5.7.2 - Transactions with Associates 


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). 

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. 


Sales of goods and services 17 13 3 

Purchases of goods and services (7) (18) (17) 

Interest and dividends received 3 4 3 



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. 


Sales of goods and services 28 25 20 

Purchases of goods and services (11) (9) (12) 

Interest and dividends received 2 4 9 



operating receivables 13 10 10 

operating payables 5 4 5

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: 



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 

3 

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. 


118 

3 Notes 



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: 


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.

7 - list of consolidated companies 

Companies Countries % voting 

rights 

Valeo SA (Parent company) France 

EuROpE 



2006 2005 2004 

% 

interest 

% voting 

rights 

% 

interest 

% voting 

rights 

3 

% 

interest 

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 

Valeo Zexel China Climate 

Control (merged with Valeo 

France 100 100 100 100 100 100 

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. 


120 

3 Notes 




rights 


2006 2005 2004 

% 

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. 

Valeo materiales de Fricción, 

Spain 99.8 99.8 99.8 99.8 99.8 99.8 

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. 

Valeo Sistemas de Conexion 

Spain 100 100 100 100 100 100 

electrica, S.l. 

Valeo Sistemas de Seguridad 

Spain 100 100 100 100 100 100 

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. 

Valeo Cablaggi e 

Italy 99.9 99.9 99.9 99.9 99.9 99.9 

Commutazione, S.p.a. 

Valeo Sicurezza Abitacolo, 

Italy 100 100 100 100 100 100 

S.p.a. 

Valeo Sistemi di 

Italy 100 99.9 100 99.9 100 99.9 

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 

Valeo Auto-electric 

Germany 100 100 100 100 100 100 

Beteiligungs GmbH 

Valeo Germany Holding 

Germany 100 100 100 100 100 100 

GmbH 

Valeo Holding deutschland 

Germany 100 100 100 100 100 100 

GmbH 

Valeo Grundvermogen 

Germany 100 100 100 100 100 100 

Verwaltung GmbH 

Valeo Beleuchtung 

Germany 100 100 100 100 100 100 

deutschland GmbH Germany 100 100 100 100 100 100 

Valeo Klimasysteme GmbH 

Valeo Klimasysteme 

Germany 100 100 100 100 100 100 

Verwaltung SAS & Co. KG 

Valeo motoren und 

Germany 100 100 - - - - 

Aktuatoren GmbH (7) Germany - - 100 100 100 100 







(7) Company sold in 2006.


rights 



2006 2005 2004 

% 

interest 

% voting 

rights 

% 

interest 

% voting 

rights 

3 

% 

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 Verwaltungsbeteiligungs 

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 

United 

100 100 100 100 50 50 

Valeo UK ltd 

Kingdom 

United 

100 100 100 100 100 100 

labauto ltd 

Kingdom 

United 

100 100 100 100 100 100 

telma Retarder ltd 

Kingdom 

United 

100 100 100 100 100 100 

Valeo Climate Control ltd 

Kingdom 100 100 100 100 100 100 

Valeo engine Cooling UK ltd 

(ex-Valeo Security Systems ltd) 

Valeo Service UK ltd 

United 

Kingdom 

United 

100 100 100 100 100 100 

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. 

Valeo International Holding 

Netherlands 100 100 100 100 100 100 

B.V. Netherlands 100 100 100 100 100 100 

Valeo Service Benelux B.V. Netherlands 

Czech 

100 100 100 100 100 100 

Valeo Vymeniky tepla S.r.o. Republic 

Czech 

100 100 100 100 100 100 

Sylea tchequia S.r.o. 

Republic 

Czech 

100 100 100 100 100 100 

Valeo Autoklimatizace S.r.o. 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. 

Valeo Service eastern europe 

Poland 100 100 100 100 100 100 

Sp.zo.o. 

Valeo electric and electronic 

Poland 100 100 100 100 100 100 

Systems Sp.zo.o. 

Valeo Auto electric Hungary 

Poland 100 100 100 100 100 100 

Spare Parts Production llC Hungary 100 100 100 100 100 100 

Valeo Kabli, d.o.o. 

Valeo Cablaje S.r.l. (ex-Valeo 

electronice si Sisteme de 

Slovenia 100 100 100 100 100 100 

Conectare Romania) Romania 100 100 100 100 100 100 









122 

3 Notes 




rights 


2006 2005 2004 

% 

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. 

Valeo otomotiv Sistemleri 

turkey 100 100 100 100 100 100 

endustrisi A.S. 

Valeo Interbranch 

turkey 100 100 100 100 100 100 

Automotive Software (egypt) 

Valeo Systems South Africa 

egypt 100 100 - - - - 

(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. 

Valeo Investment Holdings, 

United States 100 100 100 100 100 100 

Inc. 

Valeo Raytheon Systems, 

United States 100 100 100 100 100 100 

Inc. (5) Valeo Compressor North 

America, Inc. (ex-Selective 

United States 77.2 77.2 73.1 73.1 66.6 66.6 

technology, Inc.) (3) United States 100 100 100 100 50 50 

telma Retarder Inc. 

Valeo Acustar thermal 

United States 100 100 100 100 100 100 

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. 

Valeo Switches & detection 

United States 100 100 100 100 100 100 

Systems, Inc. United States 100 100 100 100 100 100 

Valeo Sylvania, llC (2) Valeo Sylvania Services, 

United States 50 50 50 50 50 50 

S de Rl de CV (2) mexico 50 50 50 50 50 50 

Valeo termico, SA de CV 

delmex de Juarez 

mexico 100 100 100 100 100 100 

S de Rl de CV mexico 100 100 100 100 100 100 









rights 



2006 2005 2004 

% 

interest 

% voting 

rights 

% 

interest 

% voting 

rights 

3 

% 

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, 


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, 


Valeo Climate Control de 

mexico, SA de CV 

Valeo Climate Control de 

mexico Servicios, 

mexico 100 100 100 100 100 100 

S de Rl de CV 

Valeo materiales de Fricciòn 

mexico 100 100 100 100 100 100 

de mexico, SA de CV mexico 100 100 100 100 100 100 

SoUtH AmeRICA 

Valeo Climatizacao Brasil 

(merged with Valeo Sistemas 

Automotivos ltda) 

Valeo Sistemas Automotivos 

Brazil - - - - 100 100 

ltda Brazil 100 100 100 100 100 100 

Cibié Argentina, SA 

dAV Argentina, SA (merged 

Argentina 100 100 100 100 100 100 

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) Valeo embragues Argentina, 

Argentina - - - - 50 26 

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) Valeo Compressor (thailand) 

Co. ltd (ex-Zexel Valeo 

Iran 51 51 51 51 - - 

Compressors) (3) Valeo Compressor Clutch 

(thailand) Co. ltd (ex-Zexel 

thailand 98.5 98.5 98.5 98.5 50 48.1 

Clutches Co. ltd) (3) Valeo Siam thermal Systems 

thailand 97.3 97.3 97.3 97.3 50 48.1 

Co.ltd (ex-Siam Zexel Co. ltd) (4) Valeo thermal Systems Sales 

(thaïland) (ex-Zexel Sales 

thailand 74.9 74.9 74.9 74.9 39 19.5 

thailand) (4) thailand 74.9 74.9 89.9 74.9 7,8 7.8 









124 

3 Notes 




rights 


2006 2005 2004 

% 

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) Valeo Samsung thermal 

South Korea 50 50 50 50 50 50 

Systems (2) Valeo Compressor Korea Co. 

ltd (ex-Zexel Valeo Climate 

South Korea 50 50 - - - - 

Control Korea Co. ltd) (3) dae myong Precision 

South Korea 100 100 100 100 50 50 

Corporation (3) South Korea 100 100 100 100 50 50 

Konno Sangyo Co. ltd (7) Zexel logistics Company 

Japan - - 100 100 50 50 

(Butsuryu) (7) Japan - - 100 100 50 50 

Zexel logitec Company (7) Japan - - 100 100 50 50 

Ichikoh Industries limited (1) Valeo engine Cooling Japan 

Japan 29.4 29.4 28.2 28.2 22.7 22.7 

Co. ltd Japan 100 100 100 100 100 100 

Valeo Unisia transmissions K.K. 

Valeo thermal Systems Japan 

Corp. (ex-Zexel Valeo Climate 

Japan 66 66 66 66 66 66 

Control Corporation) (3) Valeo Automotive 

transmissions Systems 

Japan 100 100 100 100 50 50 

(Nanjing) Co. ltd 

Hubei Valeo Autolighting 

China 100 100 - - - - 

Company ltd 

Valeo Automotive Air 

China 100 100 75 75 75 75 

Conditioning Hubei Co. ltd 

Faw Valeo Climate Control 

China 55 55 55 55 55 33 

System (1) Huada Automotive Air 

China 36.5 36.5 36.5 36.5 36.5 21.9 

Conditioner Co. ltd (1) Valeo lighting Hubei 

China 30 30 30 30 30 15 

technical center Co. ltd China 100 100 100 100 100 100 

Nanjing Valeo Clutch Co. ltd (2) Shanghai Valeo Automotive 

China 55 55 55 55 50 50 

electrical Systems Company ltd (2) Valeo Shanghai Automotive 

electric motors & Wiper 

China 50 50 50 50 50 50 

Systems Co. ltd 

taizhou Valeo-Wenling 

China 55 55 55 55 55 55 

Automotive Systems Co. ltd 

telma Vehicle Braking 

China 100 100 55 55 55 55 

System (Shanghai) Co. ltd 

Shenzhen Valeo Hangsheng 

Automotive Switches & 

China 70 70 70 70 - - 

detection Syst. Co. ltd 

Valeo Automotive Security 

China 75 75 75 75 - - 

Systems (Wuxi) Co. ltd China 100 100 100 100 - - 









rights 



2006 2005 2004 

% 

interest 

% voting 

rights 

% 

interest 

% voting 

rights 

3 

% 

interest 

Valeo Fawer Compressor 

(Changchun) Co. ltd (2) Valeo management (Beijing) 

China 60 60 60 60 - - 

Co. ltd 

Foshan Ichikoh Valeo Auto 

China 100 100 - - - - 

lighting Systems Co. ltd (2) Valeo engine Cooling 

China 50 50 - - - - 

(Shashi) Co. ltd China 100 100 - - - - 

Pt Valeo AC Indonesia (1) Valeo engineering Center 

Indonesia 49 49 49 49 49 24.5 

(India) Private limited 

Amalgamations Valeo Clutch 

India 100 100 - - - - 

Private limited (2) Valeo Friction materials India 

India 50 50 50 50 50 50 

limited India 60 60 60 60 60 60 









126 

3 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 

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 


This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards 

applicable in France. 

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. 

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 


Paris La Défense and Neuilly-sur-Seine, February 12, 2007 


Statutory auditors' report on the 2006 IFRS consolidated financial statements 

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 Reydel 

member of KPmG International PricewaterhouseCoopers Audit 

Jean-Pierre Crouzet emmanuel Paret Serge Villepelet Jean-Christophe Georghiou 

3 


128 

3 Statutory 


auditors' report on the 2006 IFRS consolidated financial statements 


CoRpoRate 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 

4 


130 

4 Report 

CORPORAtE GOVERnAnCE 

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;



• seven Directors are independent with respect to the criteria 1.2. Directors’ access to information 

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. 

1.2.1. Directors’ access to information 

4 

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. 


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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 firsthalf 

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.

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 



4 

(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-inkind 

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.

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 


2. Internal control procedures 

This 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. 

1.11.2. Pension scheme 



4 

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). 

2.2. 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 


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.

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 



4 

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. 


138 

4 Report 



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


Composition of the Board of Directors at December 31, 2006 

Composition of the Board of Directors at 


Name First appointed 

Thierry Morin March 31, 2001 

End of term 

of office 

General 

Shareholders’ 

Meeting to 

be called 

to approve 

the 2006 

financial 

statements 

Carlo De 

Benedetti 

(until July 13, 

2006) July 4, 1986 July 13, 2006 

Daniel Camus May 17, 2006 

Jérôme 

Contamine May 17, 2006 

General 


Meeting to 

be called 

to approve 

the 2009 

financial 

statements 

General 


Meeting to 

be called 

to approve 

the 2009 

financial 

statements 

Main 

position 

held 

within the 

Company 

Chairman 

and Chief 

Executive 

Officer 

Main position 

held outside 

the Company 

Chairman of 

the Board of 

Directors of CIR 

SpA 

Chief 

Operating 

Officer in 

charge of 

finance and 

international 

development 

in the EDF 

Group 

Senior 

Executive Vice- 

President of 

Veolia Environnement 

4 

Other directorships and positions held in all 

companies in 2006 

• 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) 

Limited 

• Legal Manager of Valeo Management 

Services, Valeo Auto-Electric Beteiligungs 

GmbH, Valeo Germany Holding GmbH, Valeo 

Grundvermögen Verwaltung GmbH, and Valeo 

Holding Deutschland GmbH 

• Director 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 

Cofide-CIR Group 

• Chairman of the Board of Directors of Cofide 

SpA and CIR SpA 

• Director of Gruppo Editoriale L’Espresso SpA 

and Sogefi SpA 

Outside the Cofide-CIR Group 

• Chairman of the Board of Directors of CDB Web 

tech SpA 

• Chairman of the Supervisory Board of M&C 

Management & Capitali SpA 

• Director of Pirelli SpA and Banca Intermobiliare 

SpA 

EDF Group 

• Chairman of the Board of Directors of EDF 

Energy (United Kingdom) and EDF International 

• Director of Edison (Italy) and transalpina di 

Energia (Italy) 

• Member of the Supervisory Board of EnBW 

(Germany) 

Outside the EDF Group 

• Member of the Supervisory Board of Dalkia 

and Morphosys (Germany) 

Veolia Group 

• Director 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 France 

• Member of Dalkia’s A and B Supervisory Boards 

Outside the Veolia Group 

• Chairman of Venao (United States) 

• 

Director of Rhodia and Venac (United States) 


140 

4 Composition 


of the Board of Directors at December 31, 2006 


Pierre-Alain 

De Smedt March 7, 2005 

François 

Grappotte March 31, 2003 

Philippe 

Guédon March 31, 2003 

Yves-André 

Istel January 29, 1992 


End of term 

of office 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 

Main 

position 

held 

within the 

Company 

Main position 

held outside 

the Company 

Chairman 

of FEBIAC 

(the Belgian 

Federation of 

the Car and 

two-wheeler 

Industries) 

and director 

of various 

companies in 

Belgium 

Honorary 

Chairman of 

Legrand S.A. 

Managing 

Partner of 

Espace 

Développement 

Senior Advisor 

to Rothschild, 

Inc. 



• Director 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 (Belgian Federation of the 

Car and two-wheeler Industries) 

• Member of the Management Committee of FEB 

(Belgian Business Federation) 

Legrand Group 

• Chairman 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 Group 

• Director of BnP Paribas 

• Member of the Supervisory Board of Michelin 

• Member 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) 

• 

Director of Compagnie Financière Richemont 

AG, Imperial Sugar Company, and tiedemann 

trust Company


Jean-Bernard 

Lafonta 

December 7, 

2001 

Alain Minc July 4, 1986 

Véronique 

Morali March 31, 2003 

Erich Spitz June 24, 1987 

End of term 

of office 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 

Main 

position 

held 

within the 

Company 

Main position 

held outside 

the Company 

Chairman 

of the 

Management 

Board of 

Wendel 

Investis sement 

Chairman of 

A.M. Conseil 

Director 

and Chief 

Operating 

Officer of 

Fimalac 

Advisor to 

thales 


Composition of the Board of Directors at December 31, 2006 



Wendel Group 

• Chairman of the Supervisory Board of Editis 

Holding 

• Chairman of the Supervisory Board of Bureau 

Veritas 

• Member of the Supervisory Board of Oranjenassau 

Groep B.V. 

• Director of Legrand Holding and Legrand S.A. 

Outside the Wendel Group 

• Chairman of the Board of Directors of Winvest 

S.A. (Luxembourg) 

• Legal Manager of Granit (SARL), JBMn 

(Luxembourg), and Winvest Conseil 

(Luxembourg) 

• Chairman of the Supervisory Board of 

Le Monde 

• Director of Fnac and Vinci 

4 

Fimalac Group 

• Sole Director of FCBS GIE 

• Member of the Board of Fimalac Inc., Fitch 

Ratings, Inc., and Fitch Risk Management, Inc. 

Outside the Fimalac Group 

• Director of Eiffage, Club Méditerranée, and 

Algorithmics (Canada) 

Thales Group 

• Chairman of thales Avionics Lcd 

• Director of thales Corporate Ventures 

Outside the Thales Group 

• Chairman of the Supervisory Board of novaled 

and Riber 

• Member of the Management Board of ERA 

• Correspondent member of the Académie des 

Sciences 

• Member of the Académie des technologies 

• 

Honorary Chairman of European Industrial 

Research Management Association (EIRMA) 


142 

4 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 

Year ended December 31, 2006 

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 


Salustro Reydel 

Member of KPMG International 

The Statutory Auditors 

PricewaterhouseCoopers Audit 

Jean-Pierre Crouzet Emmanuel Paret Serge Villepelet Jean-Christophe Georghiou


4 


144 

4 



InfoRmatIon 

on the company 

and Its capItal 

General information about the issuer P. 146 

1. 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. 167 

1. Changes in Valeo’s share capital .........................................................................................................................167 

2. Authorized, unissued capital ...............................................................................................................................168 

3. Share equivalents ..................................................................................................................................................169 

4. Other securities ......................................................................................................................................................169 

Current ownership structure P. 172 

1. Changes in ownership structure since 2004......................................................................................................172 

2. Disclosure thresholds ............................................................................................................................................174 

3. Shareholder identification ....................................................................................................................................174 

Market for the Company’s securities P. 176 

1. Share performance over 18 months ...................................................................................................................176 

2. Share buyback program and cancellation of treasury shares .........................................................................176 

3. Dividends ................................................................................................................................................................177 

Investor relations P. 178 

1. 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. 184 

Person responsible for the information provided in the registration document .............................................184 

Declaration by the person responsible for the registration document..............................................................184 

5 


146 

5 General 

InFORMAtIOn On the COMPAny AnD ItS CAPItAL 

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. 


comptes de Versailles.

- 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. 


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. 


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 



5 

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. 


148 

5 General 



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 

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 


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. 


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. 

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

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 

5 

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. 


150 

5 General 

Name/ 

business 

address 

Thierry Morin 

Aged 55 


43, rue Bayen 

– 75017 Paris 

France 



Daniel Camus 

Aged 55 

eDF – Direction 

Finance 

22-30 avenue 

de Wagram 

– 75382 Paris 

Cedex 08 

France 

Number 

of Valeo 

shares 

held 

* Current directorships and positions. 


First 

appointed 

4,300 March 21, 

2001 

200 May 17, 


Start of term 

of office 

March 31, 

2003 

May 17, 


End of term 

of office 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 

the 2009 

financial 

statements 

Main 

position 

held 

within the 

Company 

Chairman 

and Chief 

executive 

Officer 

Main positions 

held outside 

the Company 

Management 

positions and 

directorships 

in several 

Valeo Group 

subsidiaries 

(see p. 140) 

Chief Operating 

Officer in 

charge of 

finance and 

international 

development in 

the eDF group 

Other directorships 

and positions held in 

companies other than 

Valeo subsidiaries during 

the past five years 

• 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 

Directors 

• Director of CeDeP* and 

Arkema* 

EDF Group 

• Chairman 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 Group 

• Director of Aventis 

Pharma, Inc. (United 

States) 



of hoechst Marion 

Roussel AG (Germany) 

and Aventis Pharma AG 

(Germany) 



Aventis Pharma Gmbh 

(Germany) 



Dalkia*, Morphosys 

(Germany)*, and 

Aventis Pharma SA

Name/ 

business 

address 

Jérôme 

Contamine 

Aged 49 

Veolia 

environnement 

38, avenue 

Kléber – 75116 

Paris 

France 

Pierre-Alain De 

Smedt 

Aged 63 

Résidence 

Château d’Issan 

hofstraat 31 

B –8400 

Oostende 

Belgium 

Number 


shares 

held 


First 

appointed 

2,000 May 17, 


200 March 7, 

2005 

Start of term 

of office 

May 17, 


March 7, 

2005 

End of term 

of office 

General 


Meeting to 

be called 

to approve 

the 2009 

financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 


Main 

position 

held 

within the 

Company 


held outside 

the Company 

Senior executive 

Vice-President 

of Veolia 

environnement 


Chairman 

of FeBIAC 

(the Belgian 

Federation of 

the Car and 

two-wheeler 

Industries) 

and director 

of various 

companies in 

Belgium 






5 

Veolia Group 

• Chairman of the Board 

of Directors of Ve 

Services-Ré 

• Director 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)* 


Managing Board of 

Vivendi environnement 



Veolia eau* and Dalkia 

France* 

• Member of Dalkia’s 

A and B Supervisory 

Boards* 

Outside the Veolia Group 

• President and Chairman 

of VenAO (United States)* 

• Director of Rhodia*, 

VenAC (United States)*, 

Statoil (norway), FCC 

espagne, and Cementos 

Portland espagne 

• executive Vice-President 

of Renault SA 

• Director of Belgacom*, 

C.n.P. (Compagnie 

nationale à 

Portefeuille/A. Frère 

Group)*, Deceuninck 

Plastics*, and Alcopa* 


executive Committee 

and Director of FeBIAC 

(the Belgian Federation 

of the Car and twowheeler 

Industries)* 


Management 

Committee of FeB 

(the Belgian Business 

Federation) 


152 

5 General 

Name/ 

business 

address 



François 

Grappotte 

Aged 71 

Legrand 

128, avenue 

du Maréchal 

de Lattre de 

tassigny – 

87045 Limoges 

Cedex 

France 

Number 


shares 

held 



First 

appointed 

500 March 31, 

2003 

Start of term 

of office 

March 31, 

2003 

End of term 

of office 

General 


Meeting to 

be called 

to approve 


financial 

statements 

Main 

position 

held 

within the 

Company 


held outside 

the Company 

honorary 

Chairman of 

Legrand S.A. 






Legrand Group 

• Chairman 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 Group 

• Director of BnP Paribas* 

and France telecom 



Michelin* and Galeries 

Lafayette 

• Member 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 contrôlecommande 

et des 

services associés), and 

the Board of Promotelec 

(Promotion de 

l’installation électrique 

dans les bâtiments 

neufs et anciens)

Name/ 

business 

address 

Philippe 

Guédon 

Aged 73 

espace 


16, rue troyon 

92316 Sèvres 

France 

Yves-André Istel 

Aged 71 

Rothschild, Inc. 

1251 Avenue of 

the Americas, 

51st floor 

new york, ny 

10020, USA 

Helle 

Kristoffersen** 

Aged 43 

Alcatel-Lucent 

54 rue La Boétie 

75008 Paris 

France 

Number 


shares 

held 

First 

appointed 

100 March 31, 

2003 

500 January 29, 

1992 

- March 22, 

2007 


** Appointed to fill the seat left vacant by Véronique Morali. 

Start of term 

of office 

March 31, 

2003 

March 31, 

2003 

March 22, 

2007 

End of term 

of office 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 


Main 

position 

held 

within the 

Company 


held outside 

the Company 

Managing 

Partner 

of espace 



Senior Advisor 

to Rothschild, 

Inc. 

Vice President, 

Corporate 

Strategy 

Alcatel-Lucent 






• Chairman and Chief 

executive Officer of 

Matra 



Matra Automobile 

Rothschild Group 

• Vice-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 

Company 




• Vice President, 

economic Analysis 

of the Alcatel group 

5 


154 

5 General 

Name/ 

business 

address 



Jean-Bernard 

Lafonta 

Aged 45 

Wendel 

Investissement 

89, rue taitbout 

75009 Paris 

France 

Number 


shares 

held 



First 

appointed 

100 December 7, 

2001 

Start of term 

of office 

March 31, 

2003 

End of term 

of office 

General 


Meeting to 

be called 

to approve 


financial 

statements 

Main 

position 

held 

within the 

Company 


held outside 

the Company 

Chairman of the 

Management 

Board of 

Wendel 







Wendel Group 



editis holding* 

• Vice-Chairman and 

Chairman* of the 


Bureau Veritas 

• Chief executive Officer 

of Compagnie Générale 

d’Industrie et de 

Participations - CGIP 

• executive Vice- 

President of Wendel 




Oranje-nassau Groep 

B.V.* 

• Director of Legrand 

holding*, Legrand S.A.*, 

Lumina Parent, Wendel 

Investissement, and 

Bureau Veritas 

• Permanent 

representative of Sofu 

on the Supervisory 

Board of Bureau Veritas 

Outside the Wendel Group 

• Chairman of Banque 

Directe 

• Chairman of the Board 

of Directors of Winvest 

S.A. (Luxembourg)* 

• Legal Manager of 

Granit (SARL)*, JBMn 

(Luxembourg)*, 

and Winvest Conseil 

(Luxembourg)* 


General Management 

Committee of BnP 

Paribas 




• Director of Cap Gemini

Name/ 

business 

address 

Alain Minc 

Aged 58 

A.M. Conseil 

10, avenue 

George V 

75008 Paris 

France 

Erich Spitz 

Aged 76 

thales 

RD 128 – 

91767 Palaiseau 

Cedex 

France 

Number 


shares 

held 


First 

appointed 

Start of term 

of office 

500 July 4, 1986 March 31, 

2003 

144 June 24, 

1987 

March 31, 

2003 

End of term 

of office 

General 


Meeting to 

be called 

to approve 


financial 

statements 

General 


Meeting to 

be called 

to approve 


financial 

statements 


Main 

position 

held 

within the 

Company 


held outside 

the Company 


Chairman of 

A.M. Conseil 

Advisor to 

thales 






5 


Supervisory Board of Le 

Monde* 

• Chairman of Société des 

Lecteurs du Monde 

• Director of Fnac*, Vinci*, 

and yves Saint-Laurent 

S.A. 






Pinault-Printemps- 

Redoute 

Thales Group 

• Chairman of thales 

Avionics Lcd* 

• Director of thales 

Corporate Ventures* 

Outside the Thales Group 



novaled* and Riber* 



of eRA 




• Correspondent member 

of the Académie des 

Sciences* 


Académie des 

technologies* 

• honorary Chairman of 

the european Industrial 

Research Management 

Association (eIRMA)* 


156 

5 General 



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.

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 



5 

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. 


158 

5 General 



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.

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 



5 

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. 


160 

5 General 



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 


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

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, 



5 

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 


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. 

Compensation paid by the Company 

Compensation 

paid by Total gross 

Variable Attendance Benefits in controlled compensation 

(In euros) 

Fixed portion portion 

fees 

kind companies and benefits 

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. 


162 

5 General 



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 

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, 

3.3. Information concerning stock options and share grants 

3.3.1. Stock options granted and exercised during the year 

no Directors hold stock options or were awarded share grants 


No stock options were granted to Directors in 2006 apart from to Thierry Morin. In addition, no Board members exercised any stock options 


Number of 

Weighted 

average 

Stock options granted to and exercised by members of the options granted/ exercise 

Date of Board 

Board of Directors 

exercised price Expiry date Meeting 

Options granted in 2006 by Valeo* and/or other Group 

150,000 stock 

companies 

purchase options** €33.75 March 2, 2014 March 3, 2006 

Options exercised in 2006 

* No Group company other than Valeo issued stock options during the year. 

none 

** 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).

Stock options granted to and exercised by the ten employees 

with the highest number of options 

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 

Options exercised in 2006 by the ten employees of Valeo 

or other Group companies exercising the highest number of 

options 

* 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 

Number of 

options granted/ 

exercised 

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 



Weighted 

average 

exercise 

price Expiry date 

5 

Date of Board 

meeting 

175,000 ** 

stock purchase 

options (16 

beneficiaries***) €32.63 nov. 19, 2014 nov. 20, 2006 

26,500 stock 

subscription 

options €27.31 - - 

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 

Share grants to the ten employees receiving the highest number of shares 

without consideration 

Valeo shares free of consideration to a restricted number of high- 

potential managers, excluding corporate officers. 

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. 


164 

5 General 



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 

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. 

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 

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 


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. 

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. 

have, or have had in the recent past, a significant impact on the 

financial position or profitability of the Company or the Group. 

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.

The table below provides details of the coverage limits by type of risk: 

Type of insurance 



5 

Coverage 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. 


166 

5 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 - - 


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 - - 


Statutory audit and contractual audits (5.1) (2.2) 

Issuer - - 


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) 



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 

Changes in capital since December 31, 2002 are as follows: 

Year Type of operation 

2002 

5 

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 


Par Value Prermium Total Number of 

shares 

Total number 

of shares 

Issuance 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 

2005 



stock options - 1 1 51,333 

Capital reduction further to public 

tender offers (19) (233) (252) (6,250,000) 77,510,357 


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. 


168 

5 General 


information about the Company’s capital 

2. Authorized, unissued capital 

Securities concerned Date of Shareholders’ Meeting 

(duration and expiry of authorization) 

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 2 6 months, expiring on July 

3, 2007) 

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) 


Maximum amount of 

issue 

1.52 billion euros worth of 

debt securities(A)+(C)+(G) 

ceiling = 2 billion euros 

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) 

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) 

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) 

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) 

Share grants (F) AGM of May 3, 2005 – fifteenth 



1.52 billion euros worth of 



Maximum capital 

increase 

76.22 million euros 

(A)+(B)+(C)+(D)+(e)+(F)+ 

(G) ceiling 

= 180 million euros 


(A)+(B)+(C)+(D)+(e)+(F)+ 

(G) ceiling 



(A)+(B)+(C)+(D)+(e)+(F)+ 

(G) ceiling 


10% of the Company’s 

share capital(A)+(B)+(C)+ 

(D)+(e)+(F)+ (G) ceiling 



(A)+(B)+(C)+(D)+(e)+(F)+ 

(G) ceiling 


utilizations of 

authorizations 

during the year 

none 

none 

none 

none 

none 

1,500,000 shares* none 

the number of new or 

existing shares granted 

free of consideration may 

not exceed 10% of the 

Company’s capital. 

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 



Issue capped at 15% 

of the initial issue 1.52 

billion euros worth of 



(A)+(B)+(C)+(D)+(e)+(F)+ 

(G) ceiling 


(A)+(B)+(C)+(D)+(e)+(F)+ 

(G) ceiling 


163,000 

existing shares 

granted free of 

consideration 

* * 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. 

none

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. 

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 



5 

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). 

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%. 


170 

5 General 


information about the Company’s capital 

Stock option and Share grant planS in force at december 31, 2006 

Date of 


Meeting 

No. of 

options Term Date (1) 


Exercice 

price 

No. of 

grantees 

Stock subscription option plans in force at December 31, 2006 

05/27/98 500,000 6 

years 

05/25/99 500,000 6 

years 

05/25/00 800,000 8 

years 

05/09/01 1,000,000 8 

years 

06/10/02 1,500,000 8 

years 

03/31/03 1,500,000 8 

years 

04/05/04 1,500,000 8 

years 

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 

Impact 

of tender 

offers 

(56,330 at 

June 21, 

2005) 

04/12/00 54.52 € 1 37,500 35,625 0 0 35,625 357 

05/25/00 60.70 € 1 50,000 50,000 0 0 0 500 

122,875 0 0 

10/17/00 48.00 € 1,084 500,000 0 0 8,287 

677,125 0 210,000 154,000 0 

03/21/01 55.82 € 2 80,000 80,000 0 0 0 800 

12/07/01 42.48 € 5 600,000 600,000 0 0 300,000 3,000 

12/10/01 42.69 € 213 442,875 0 140,000 118,000 0 3,455 

07/01/02 43.84 € 699 420,000 0 2,500 96,700 0 2,724 

11/25/02 28.30 € 229 600,000 0 159,500 107,500 0 4,568 

03/31/03 23.51 € 755 700,000 160,000 52,750 44,000 0 6,022 

11/06/03 32.91 € 1,005 780,000 61,000 117,766 77,395 0 7,185 

11/08/04 28.46 € 1,094 1,123,200 160,000 169,600 134,400 0 10,682 

TOTAL STOCK SuBSCRIPTION PLANS 6,133,575 1,146,625 852,116 731,995 335,625 47,580 

Stock purchase option plans in force at December 31, 2006 

03/31/03 1,500,000 8 

years 

04/05/04 1,500,000 8 

years 

05/03/05 4,500,000 8 

years 

TOTAL STOCK PuRCHASE 

PLANS 

Share grant plans in force at December 31, 2006 

05/03/05 4,500,000 - 11/17/05 Price at 

02/17/08 

11/06/03 32.91 € 1,005 500,000 39,000 75,484 49,605 0 4,263 

11/08/04 32.74 € 1,094 280,800 40,000 42,400 33,600 0 2,787 

11/17/05 32.32 € 1,082 650,000 0 94,300 48,900 0 

03/03/06 33.75 € 2 187,000 150,000 37,000 0 0 

11/20/06 32.63 € 1,298 1,309,250 0 251,000 175,000 0 

03/03/06 Price at 

06/03/08 

11/20/06 Price at 

11/20/09 

2,927,050 229 000 500,184 307,105 0 7,050 

1,082 600,000 0 141,450 73,350 300,000 

2 63,000 50,000 13,000 0 36,500 

116 100,000 0 0 18,500 0 

TOTAL SHARE GRANT PLANS 763,000 50,000 154,450 91,850 336,500 0 

(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.

Start date of exercise period 

Expiry 

date 

Options 

out at 

12/31/2005 

100% conditional 04/11/06 35,625 

357 

100% immediately 05/24/06 50,000 

500 

Options 

exercised in 


0 

0 

0 

0 

Options 

exercised at 


(aggregate) 

0 

0 

0 

0 


Options 

cancelled in 



35,625 

357 

50,000 

500 

Options 

cancelled at 


(aggregate) 

37,500 

357 

50,000 

500 

Options 

outstanding 

at 


0 

0 

No. of 

shares to be 

subscribed 

or 

purchased 

0 

0 

5 

Residual 

grantees 

10/16/06 0 0 0 0 122,875 0 0 0 

50%-2 years; 100%-3 years 10/16/06 360,000 0 0 360,000 500,000 0 0 594 

10/16/08 442,500 

8,115 

100% immediately 03/20/09 80,000 

800 

50% immediately; 50% 

conditional 

50%-2 years; 100%-3 years 12/09/09 331,800 

3,340 

50%-2 years; 100%-3 years 06/30/10 264,000 

2,640 

50%-2 years; 100%-3 years 11/24/10 434,705 

4,348 

0 0 27,000 

3,942 

0 0 0 

0 

261,625 

4,114 

0 

0 

0 

0 

415,500 

4,173 

80,000 

800 

0 

0 

419,673 

2006 Reference document - VALEO 171 

0 

0 

80,800 2 

12/06/09 300,000 0 0 0 300,000 300,000 303,000 5 

3,000 0 0 3,000 

30,455 

305 

0 0 33,000 

332 

0 0 25,200 

252 

53,750 

385 

54,500 

545 

144,075 

447 

181,200 

336 

196,500 

685 

298,800 

3,008 

238,800 

2,388 

349,750 

3,498 

301,808 130 

241,188 474 

353,248 153 

50%-2 years; 100%-3 years 03/30/11 571,425 35,300 63,125 34,375 135,125 501,750 506,817 549 

5,789 362 495 360 460 5,067 

50%-2 years; 100%-3 years 11/05/11 628,193 

6,932 

50%-2 years; 100%-3 years 11/07/12 1,033,360 

10,339 

4,531,608 

46,160 

50%-2 years; 100%-3 years 11/05/11 402,457 

4,116 

50%-2 years; 100%-3 years 11/07/12 258,340 

2,694 

0 

0 

3,800 

38 

69,555 

705 

0 

0 

0 

0 

0 

0 

3,800 

38 

120,675 

918 

0 

0 

0 

0 

54,240 

612 

81,800 

818 

755,740 

7,718 

34,760 

356 

20,450 

214 

206,047 

865 

171,640 

1,161 

2,183,712 

8,925 

132,303 

503 

42,910 

307 

573,953 

6,320 

947,760 

9,483 

3,706,313 

37,737 

367,697 

3,760 

237,890 

2,480 

580,273 748 

957,243 907 

3,744,050 

371,457 748 

240,370 907 

50%-2 years; 100%-3 years 11/16/13 650,000 0 0 53,620 53,620 596,380 596,380 1,028 

50%-2 years; 100%-3 years 03/02/14 0 0 0 0 187,000 187,000 2 

50 %-2 ans ; 100 %-3 ans 11/19/14 0 0 0 0 1,309,250 1,309,250 1,298 

Vesting period: 2 years 3 mths 

50% cond (½ based on 2006 

perf.; ½ based on 2007 perf.*) 

Vesting period: 2 years 3 mths 

50% cond (½ based on 2006 

perf.; ½ based on 2007 perf.*) 

1,310,797 

6,810 

0 

0 

0 

0 

108,830 

570 

228,833 

810 

2,698,217 

6,240 

2,704,457 

600,000 0 0 58,130 58,130 541,870 541,870 1,028 

0 0 0 0 0 63,000 63,000 2 

Vesting period: 3 years 0 0 0 0 0 100,000 100,000 116 

600,000 0 0 58,130 58,130 704,870 704,870 

* 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.

172 

5 Current 


ownership structure 

Current ownership structure 

1. Changes in ownership structure since 2004 

December 31, 2004 

Wendel 

Investissements 

Group 


Caisse 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 

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 


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

ylaws, 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 


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 


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 



5 

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. 


174 

5 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. 

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. 

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 


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. 

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. 

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

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. 



5 

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. 


176 

5 Market 


for the Company’s securities 

Market for the Company’s securities 

1. Share performance over 18 months 

Date 


Price (In euros) 

High Low Closing (average) 

Trading volume 

(no. of shares) 

Trading volume 

(In millions of 

euros) 

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

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 

3. Dividends 

Dividends per share over the past three years were as follows: 


Market for the Company’s securities 

5 

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 abovementioned 

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. 

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) 

* 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. 

86 91 84 

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. 


178 

5 Investor 


relations 

Investor relations 

Valeo aims to provide a steady flow of exhaustive and detailed 

real-time information to its diverse financial community, comprising 

1. Individual shareholder relations 

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 realtime 

stock market and shareholder information, including the 

latest share prices, ownership structure, dividends, and AGM 

documents. Financial publications can also be consulted on-line, 

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. 


current and prospective private and institutional shareholders, as 

well as financial analysts. 

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. 

Contact: 

Rémy Dumoulin 

Investor Relations Director 


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.

3. Ownership structure 

3.1. Ownership structure 

at December 31, 2006 

% capital (% voting rights) 

5.42 % (5.32 %) 

The Boston Company 

Asset Management LLC 

6.52 % (9.01 %) 

Caisse 

des Dépôts et 

consignations 

(CDC)* 

73.46 %** (71.36 %) 

Autres 

5.31 % (5.21 %) 

Brandes Investment 

Partners LP 

Number of shares: 77,580,617 

Number of voting rights: 79,109,454 

* Own account 

** Including 686,704 treasury shares (0.89 %) 

4. Stock market data 

4.84 % (4.74 %) 

Franklin 

Resources, Inc. 

4.45 % (4.36 %) 

Pardus 

European 

Special 

Opportunities 

Master Fund LP 


3.2. Ownership structure 

at March 15, 2007 

% capital (% voting rights) 

5.31 % (5.21 %) 

Brandes Investment 

Partners LP 

6.52 % (9.01 %) 

Caisse 

des Dépôts et 

consignations 

(CDC)* 

72.76 %** (70.68 %) 

Autres 

* Own account 

** Including 639,504 treasury shares (0.82 %) 

4.84 % (4.74 %) 

Franklin Resources, Inc. 

Number of shares: 77,580,617 

Number of voting rights: 79,153,315 

Investor relations 

10.57 % (10.36 %) 

Pardus 

European 

Special 

Opportunities 

Master Fund LP 

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 

5 


180 

5 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 

60 

50 

40 

30 

20 

10 

0 

J 

A 

J 

O 

J 

A 

J 

O 

J 

A 

J 

2002 2003 2004 2005 2006 


CAC 40 

O 

J 

A 

J 

O 

J 

A 

J 

O

7. Monthly trading volumes 

30,000,000 

25,000,000 

20,000,000 

15,000,000 

10,000,000 

5,000,000 

0 

J 

A 

J 

O 


Information on subsidiaries and affiliates 

2002 2003 2004 2005 2006 

Volume 

J 

A 


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 

J 

O 

J 

A 

J 

O 

J 

A 

J 

O 

J 

A 

5 

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 - VALEO 181 

J 

O

182 

5 Information 


on subsidiaries and affiliates 

France Germany Belgium, 

UK, Netherlands, 

Sweden 

VALEO EMBRAYAGES VALEO BELEUCHTUNG VALEO VISION 

DEUTSCHLAND GmbH BELGIQUE 


European Union Other European 

Countries 

Italy, 

Spain, 

Portugal 

VALEO S.p.a. 

(Italy) 

Hungary, Poland, 

Czech Republic, 

Slovakia 

VALEO AUTO-ELECTRIC 

HUNGARY SPARE 

PARTS PRODUCTION LLC 

(Hungary) 

Turkey, 

Romania 

VALEO OTOMOTIV 

SISTEMLERI 

ENDUSTRISI A.S. 

(Turkey) 

Africa North America 

Morocco, 

Tunisia, 

South Africa 

VALEO BOUSKOURA 

(Morocco) 

United States 

100 100 100 99.9 100 100 100 100 

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 AIN SEBAA 

(Morocco) 

VALEO, INC. 

VALEO FRICTION 

MATERIALS, INC. 

100 100 100 99.9 100 100 100 100 

VALEO SWITCHES & 

DETECTION 

SYSTEMS-VSDS 

100 

VALEO 

WISCHERSYSTEME 

GmbH 

100 

TELMA RETARDER 

LIMITED 

(UK) 

100 

VALEO SISTEMI DI 

CLIMATIZZAZIONE 

S.p.a. (Italy) 

100 

VALEO SERVICE 

EASTERN EUROPE 


100 

NURSAN ED 

(Turkey) 

40 

VALEO BOUZNIKA 

(Morocco) 

100 

VALEO INVESTMENT 

HOLDINGS, INC. 

100 

VALEO EQUIPEMENTS 

ELECTRIQUES MOTEUR 

100 

VALEO SICHERHEITS- 

SYSTEME GmbH 

100 

VALEO SERVICE UK 

LIMITED 

(UK) 

100 

VALEO CABLAGGI E 

COMMUTAZIONE 

S.r.l. (Italy) 

100 

VALEO 

AUTOSYSTEMY 


100 

NURSAN OK 

(Turkey) 

40 

CABLEA TUNISIE S.A. 

100 

VALEO ELECTRICAL 

SYSTEMS, INC. 

100 

VALEO SECURITE 

HABITACLE 

100 

VALEO SYSTEMES 

D’ESSUYAGE 

100 

VALEO PLASTIC 

OMNIUM S.N.C. 

VALEO KLIMASYSTEME 

GmbH 

100 

VALEO COMPRESSOR 

EUROPE GmbH 

100 

VALEO SERVICE 

DEUTSCHLAND GmbH 

VALEO ENGINE 

COOLING UK Ltd 

(UK) 

100 

VALEO SERVICE 

BENELUX B.V. 

(Netherlands) 

100 

VALEO ENGINE 

COOLING A.B. 

(Sweden) 

CABLAUTO S.r.l. 

(Italy) 

100 

CAVISUD S.r.l. 

(Italy) 

100 

VALEO 

COMMUTAZIONE S.r.l 

(Italy) 

VALEO VYMENIKY 

TEPLA S.r.o. 

VALEO CABLAJE S.r.l. 

(Czech Republic) 

(Romania) 

100 100 

VALEO 

AUTOKLIMATIZACE S.r.o. 



CONNECTIVE SYSTEMS 

S.r.l. (Romania) 

100 

100 


EUROPE S.r.o. 


SOCIETE TUNISIENNE 

DE CABLAGES - "STC" 

100 

VALEO MATEUR 

(Tunisia) 

100 

VALEO EMBRAYAGES 

TUNISIE SA 

VALEO CLIMATE 

CONTROL CORP. 

100 

VALEO SYLVANIA LLC 

50 

TELMA RETARDER INC. 

50 100 

100 

100 

100 100 100 

VALEO VISION 

100 

VALEO ELECTRONIQUE 

ET SYSTEMES DE LIAISON 

100 

DAV 

100 

VALEO LIAISONS 

ELECTRIQUES 

100 

SC2N 

100 

VALEO CABLAGE 

100 

VALEO FOUR SEASONS 

50 

TELMA 

100 

VALEO SERVICE 

100 

VALEO SYSTEMES 

THERMIQUES 

100 

VALEO FURUKAWA 

WIRING SYSTEMS 

50 

VALEO SYSTEMES DE 

CONTRÔLE MOTEUR 

100 

Industrial 

Commercialization 

VALEO SERVICE ITALIA 

S.p.a. 

99.9 

VALEO ESPAÑA S.A. 

100 

VALEO MATERIALES DE 

FRICCIÓN S.A. 

(Spain) 

100 

VALEO TERMICO S.A. 

(Spain) 

100 

VALEO ILUMINACIÓN S.A. 

(Spain) 

99,8 

VALEO PLASTIC 

OMNIUM S.L. 

50 

TELMA RETARDER 

ESPAÑA S.A. 

100 

VALEO SISTEMAS 

ELECTRICOS S.L. 

(Spain) 

100 

VALEO SISTEMAS DE 

SEGURIDAD Y DE 

CIERRE S.A. (Spain) 

100 

VALEO CLIMATIZACIÓN 

S.A. (Spain) 

100 

VALEO SISTEMAS DE 

CONEXION ELECTRICA S.L. 

(Spain) 

100 

VALEO SERVICE ESPAÑA 

S.A 

100 

VALEO VIANA 

(Portugal) 

100 

CABLAGENS DO AVE 

(Portugal) 

100 

VALEO SLOVAKIA S.r.o. 

(Slovakia) DAV TUNISIE VALEO AFTERMARKET, INC. 

100 100 100 

VALEO SYSTEMS SOUTH 

AFRICA (Proprietary) 

Limited 

51 

Main Industrial and 

Direct and indirect stakes 

VALEO SWITCHES & 

DETECTION SYSTEMS, INC. 

100 

VALEO RAYTHEON 

SYSTEMS, INC. 

77.2 

VALEO COMPRESSOR NORTH 

AMERICA, INC. 

100

Commercial Entities 

by country (% of interest 12.31.2006) 

North America South America Asia 

Mexico Brazil, 

Argentina 

VALEO MATERIALES DE 

FRICCION DE MEXICO 

SA de CV 

VALEO SISTEMAS 

AUTOMOTIVOS Ltda 

(Brazil) 


ICHIKOH INDUSTRIES 

LIMITED 


Iran South Korea China Japan India Thailand, 

Indonesia 

VALEO ARMCO 

ENGINE COOLING 

Co. 


SYSTEMS KOREA Ltd 

TAIZHOU VALEO-WENLING 

AUTOMOTIVE SYSTEMS 

Company Limited 

VALEO ENGINE 

COOLING JAPAN Co. Ltd 

VALEO FRICTION 

MATERIALS INDIA 

LIMITED 

5 

VALEO THERMAL SYSTEMS 

SALES (Thailand) Co. Ltd 

100 100 51 100 100 100 60 74.9 

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 

100 100 50 100 66 50 

VALEO SIAM THERMAL 

SYSTEMS Co. Ltd 

(Thailand) 

74.9 

VALEO TERMICO 

SA de CV 

EMELAR Sociedad 

Anonima 

(Argentina) 

VALEO PYEONG HWA VALEO AUTOMOTIVE AIR 

DISTRIBUTION Co. Ltd CONDITIONING HUBEI Co. Ltd 

VALEO THERMAL 

SYSTEMS JAPAN CORP. 

VALEO ENGINEERING 

CENTER (INDIA) 

PRIVATE LIMITED 


(Thailand) Co. Ltd 

100 100 50 55 100 100 

98.5 

DELMEX DE JUAREZ 

S. de R.L. de CV 

CIBIE ARGENTINA S.A. 

VALEO SAMSUNG 

THERMAL SYSTEMS 

Co. Ltd 

FAW-VALEO CLIMATE CONTROL 



CLUTCH (Thailand) Co. Ltd 

100 

VALEO SISTEMAS ELECTRONICOS 


100 

50 

VALEO 

36.5 

NANJING VALEO CLUTCH 

Co. Ltd 

29.4 

97.3 

PT VALEO AC INDONESIA 

100 

COMPRESSOR 

KOREA Co. Ltd 

55 49 

VALEO CLIMATE CONTROL 

DE MEXICO 

100 

VALEO SHANGHAI AUTOMOTIVE 

ELECTRIC MOTORS & WIPER 

SA de CV 


100 55 

VALEO SYLVANIA ILUMINACIÓN 


SHANGHAI VALEO AUTOMOTIVE 

ELECTRICAL SYSTEMS 

Company Limited 

50 50 

TELMA RETARDER DE MEXICO 

SA de CV 

HUADA AUTOMOTIVE AIR 

CONDITIONER Co. Ltd 

100 30 

VALEO LIGHTING HUBEI 

TECHNICAL CENTER Co. Ltd 

100 

TELMA VEHICLE BRAKING 

SYSTEM (SHANGHAI) 

Co. Ltd 

70 

SHENZHEN VALEO HANGSHENG 

AUTOMOTIVE SWITCHES AND 

DETECTION SYSTEMS Co. Ltd 

75 

VALEO AUTOMOTIVE SECURITY 

SYSTEMS (WUXI) Co. Ltd 

100 

VALEO FAWER COMPRESSOR 

(CHANGCHUN) Co. Ltd 

60 

VALEO ENGINE COOLING 

(SHASHI) Co. Ltd 

100 

FOSHAN ICHIKOH 

VALEO AUTO 

LIGHTING SYSTEMS Co. Ltd 

50 

VALEO AUTOMOTIVE 

TRANSMISSIONS SYSTEMS 

(NANJING) Co. Ltd 

100 


184 

5 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 


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.

43, rue Bayen - 75848 Paris cedex 17, France 

Tel. : 33 (0)1 40 55 20 20 - Fax : 33 (0)1 40 55 21 71 

Valeo French ”Société Anonyme” with a capital of 232,741,851 euros - 552 030 967 RCS Paris 

Valeo.com

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