Valeo - Main Impacts From the Transition to IFRS
PARIS, April 25 --
- Change in consolidation method of joint ventures not under full legal
control
- Capitalization of development expenditure
- Cancellation of the amortization of goodwill charge
- Reclassification of financial components of pension costs in "other
financial income and expense"
- Reclassification of "other income/expense - net"
Following the meeting of its Board of Directors, Valeo presented its 2004 statement of income, the changes in stockholders' equity between 1 January 2004 and 31 December 2004 and its balance sheet at 31 December 2004 restated in accordance with IFRS standards.
This press release summarizes the mechanisms and impact of the transition explained in the "Transition to IFRS standards" document available in French on www.valeo.com. This document has been approved by the Board of Directors and has been validated by the Audit Committee and the Statutory Auditors.
1- Income statement 2004 in IFRS
The presentation of the income statement according to IFRS introduces the notion of total operating revenues which encompass sales, including tooling, but also other operating revenues such as contributions to development expenditure and the sale of prototypes, the cost of which are entered under the gross margin. As a result, the gross margin rate is now expressed as a percent of sales and the aggregates of income as a percentage of operating revenues. In addition, the items which were under "other income and expense - net" under French GAAP accounting standards contribute to the operating income under IFRS and the most significant items on the Group level have been isolated in the line "other income/expense" of the operating income. Lastly, the financial component of pension costs (interest costs and return on plan assets) have been reclassified in other financial income and expenses.
Summarized reconciliation tables (in millions of euros) at 31 December 2004
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French IFRS impact IFRS standards
standards
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Net sales 9,439 -210(x) 9,229
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Total operating revenues 9,439 -146 9,293
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Gross margin 1,668 -70 1,598
% of sales 17.7% 17.3%
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Operating income 458 -125 333
% of total revenues 4.9% 3.6%
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Net income 150 91 241
% of total revenues 1.6% 2.6%
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(x) including -199 million euros related to the change in consolidation
method.
At 31 December 2004
Net income before minority interests (French GAAP) 181
Of which net income 150
Of which minority interests 31
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Amortization and impairment of assets 74
Development expenditure 29
Consolidation methods -27
Share-based payment -7
Specific tooling 3
Other -4
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Total of restatements 68
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Net income before minority interests (IFRS) 249
Of which net income 241
Of which minority interests 8
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Net income for the year 2004 rises from 181 million euros under French GAAP to 249 million euros under IFRS. The principal restatements are related to the impairment of assets (net impact of +74 million euros, reflecting the cancellation of the 90 million euro amortization of goodwill charge stated under French GAAP and a 16 million euro impairment of assets charge) and to development expenditure (+29 million euros net) and changes in the consolidation method (-27 million euros net(1)). Share-based payment reduces net income by 7 million euros.
Operating income totals 333 million euros under IFRS versus 458 million euros under French GAAP, impacted by both restatements (-18 million euros net) and reclassifications (-107 million euros net) resulting from the transition to IFRS. The main restatements are related to consolidation methods (-25 million euros), amortization of goodwill (-15 million euros), the restatement of development expenditure (+29 million euros), and share-based payment (-7 million euros).
"Other income/expense - net" (-148 million euros) under French GAAP is reassigned under IFRS in the following manner:
- Interest costs of pre-retirement plans (16 million euros) are assigned to the line "other financial income and expense".
- The significant items on a Group level comprise the new line "other income (expense)" located above operating income (78 million euros).
- The balance of 54 million euros is placed in the relevant operating expenses lines.
Additionally, the balance of the financial component of pension costs is reassigned from operating expenses to "other financial income and expense" (25 million euros).
2- Changes in stockholders' equity between 1 January and 31 December 2004
On 11 February 2005, the Group published the impact of the transition to IFRS on stockholders' equity at 1 January 2004, at the same time as its annual accounts. It amounted to 1,850 million euros, and 1,753 million euros excluding minority interests. At the end of 2004, stockholders' equity stood at 1,887 million euros, and 1,830 million euros excluding minority interests. The first application of standards IAS 32 and 39 at 1 January 2005 brings stockholders' equity to a total of 1,912 million euros (1,855 million euros excluding minority interests).
3- Balance sheet at 31 December 2004
The balance sheet total at 31 December 2004 is hardly affected by IFRS restatements (+32 million euros, +0.5%). The most significant unitary impacts result from the capitalization of development expenditure (217 million euros, of which 223 million euros net additional intangible assets and an impact of 176 million euros on stockholders' equity). The change in consolidation method results in a reduction in assets of 143 million euros and a diminishing of stockholders' equity of 58 million euros. Net financial indebtedness in IFRS stands at 520 million euros versus 500 million euros under French GAAP at 31 December 2004. Taking into account the impact of IAS 32 and 39, applicable from 1 January 2005, net financial indebtedness stands at 500 million euros.
4- First quarter 2004 income statement proforma in IFRS (unaudited)
Net income before minority interests for the first quarter 2004 under IFRS stands at 107 million euros (including 2 million euros of minority interests), compared with 83 million euros under the old standard (including 9 million euros of minority interests). The principal restatements relate to the cancellation of the amortization of goodwill (+22 million euros) and the capitalization of development expenditure (+15 million euros). Given the restatements and reclassifications, the operating income totals 88 million euros including a net charge of 20 million euros under "other income (expense)".
Valeo is an independent industrial group fully focused on the design, production and sale of components, integrated systems and modules for cars and trucks. Valeo ranks among the world's top automotive suppliers. The Group has 132 plants, 66 R&D centers, 9 distribution centers and employs 69,500 people in 27 countries worldwide
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(1) In IFRS, control is assessed exclusively in relation to the power to
govern companies. As a result, those companies over which joint
control is deemed to exist from a legal perspective are
proportionally consolidated.
For further information, please contact: Kate Philipps, +33-(0)1-40-55-20-65; Remy Dumoulin, +33-(0)1-40-55-29-30