© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the Valeo Q3 Sales Conference Call. I now hand over the call to Mr. Jacques Aschenbroich, Chairman and CEO of Valeo. Sir, please go ahead.
Yes. Thank you. Thank you very much for all of you to attend this call. I'm together with Robert Charvier, our CFO; and Thierry Lacorre, Investor Relations. As you know, we are facing some headwinds in terms of semiconductor and the impact of the [indiscernible] crisis on the automotive production. Nevertheless, we have been able to tighten upwards our EBITDA margin for 2021 to the upper range from 12.8% to 13.4%, up to 13% to 13.4%. At the time when all our competitors are having some profit warning, you can wonder why we're able to tighten upward our EBITDA margin. The reason is the -- all the reasons are extremely clear. First one, we have been extremely cautious at the beginning of the year. You remember probably our call in February when we explained to you that we're seeing the impact of the pandemic on the semiconductor crisis and shortage and that we saw some raw material price increase. And you remember at the beginning of the year, we have tried to evaluate what could it mean on our P&L and our cost. And we said it could be around EUR 80 million. And therefore, we did a range both on cash and EBITDA. And I'm sure that, that has penalized the fact that we have been cautious at the beginning of the year penalized our share price. Now when we look at it, the EUR 80 million, the good level of participation, the answer is yes. Net of the compensation we got from our customers, we would confirm that it is around EUR 80 million, the impact on our P&L, of course, is the gross margin. The second reason is, despite the volatility of our customers' short-term orders, our factories are running extremely well. They are running extremely well because you remember that we had a wave of innovation and that way that the innovation went into production in 2019 and 2020. And innovating, as always, a negative impact on the plant performance for the launch and the first month of first quarter production. That is now behind us, our plants, like I said, of course, they are impacted by the volatility of the short-term demand. But the KPI plant are extremely performing and extremely good. So that is the second reason. The third reason is the fact that we have extremely good performance in aftermarket. You have seen the growth. the growth of 18% like-for-like in Q3 and 26% on year-to-date. Don't ask me the profitability of aftermarket, and we'll never answer that question. but you can imagine, it's better than the OEM profitability. And we have been able to deliver in terms of performance better than our competitors in all our product lines. We have been able to set some price increase to compensate the raw material price increase. and we are going to increase prices again early next year. So we're extremely proud of our performance for the aftermarket. So the fact that we have been cautious at the beginning of the year, the fact that after a wave of innovation and new product launch and the fact that the aftermarket business is running extremely well with price increase. We have been able to -- like I said, tighten upwards our EBITDA margin. For the cash, we stayed to the range of EUR 330 million to EUR 550 million, and we speak about value of Siemens later on the call. At the very start of my call, I really want to congratulate the whole team of Valeo. They have been in depth very difficult situation, incredible, really incredible. First, in terms of supply chain and purchasing, we have never stopped any customer, never, which is a performance, I think. And we are probably the only one that have never stopped any customer. The second is they worked extremely hard to organize the production in a volatile way and to be able to variabilize again and again our cost every time it was possible. And at the same time, they have been extremely tight and frugal in the CapEx. And we are -- probably will be lower than what we told you at the beginning of the year. So that is the reasons why we are able to tighten upwards our EBITDA margin, and we feel extremely confident that, of course, we'll reach that new target. Now if you go by 3, you remember that ESG and carbon footprint is something extremely important. We have been investing in that area for a long time. CO2 reduction has been part of our strategy. Safety with ADAS has been part of our strategy in the last 10 years. And of course, you see on the Page 3 that we are recognized by all the agency and the rating agency as the #1 in our area. And more and more, that is part of our DNA. It's part of our culture and is part of what we are doing. We joined the [ CAT 40 ] for the SD Index, and that is, of course, recognition. You remember on Page 4 that we have a target of 0 carbon emission in 2050, but for me, it's far too way -- far away. And we have a clear target of reducing of 45% until 2030. We have a yearly target, and it's part of the variable compensation for 1,500 key managers. It's part of our performance shares and it's something that we are measuring every quarter, and we are totally on line with our target for 2021 and moving forward with all the action plans we are having, feeling extremely comfortable that we'll be able to achieve our 2030 target. If you go to next page, Page 5, you see some highlights of what we have achieved in the last few months. We are the first European automotive player to issue EUR 700 million, 7-year maturity for sustainability-linked bond. And of course, we are proud of that. Moody revised up our credit rating. We have the world's most high-performance electric assistant for bikes. And that is a program and we'll have, of course, starting delivering to our customers next year, and we'll give you some targets probably mid of next year. We have some innovation, which has been presented in the ER in Munich. We have set a cooperation in zone controllers with [ LEONI ]. We are concentrating on the domain controller and they are concentrating on the wiring. And of course, we have got a base award for our innovation in [indiscernible]. Now if you go to Page 6. What do we take as a volume? I'll come back maybe to that later on, on the very difficult forecast that we are having, but we took for our latest assumption of production of EUR 71 million, which is the passenger car plus the passenger car worldwide and in China. We think that we are going to continue our old performance. I'll come back to that later on. And we are tightening upward like I said, our EBITDA margin to the upper range from 12.8% to 13.4%, towards 13% to 13.4%. And like I said, we are confirming our cash flow generation objective between EUR 330 million and EUR 550 million. Concerning Valeo Siemens, we are very much on track until August in terms of sales. Uncertainty and unfortunately, the -- our main customers have reduced their volume forecast for the end of the year. And therefore, instead of improving the share -- the contribution to share in net earnings of equity-accounted companies, lower than last year. We think it will be at the same order of magnitude or slightly lower, but we want to be like we are always very, very cautious. So you see on the chart, the new guidance is sales between 16.9% and 17.2%. We think it will be closer to 17.2%. EBITDA between 13% and 13.4%, let's see what we'll be, but we're extremely confident that we'll reach it and the cash, like I said, between EUR 230 million and EUR 550 million. Now if we go a little bit more in detail of sales in Q3 where -- close to EUR 4 billion, down 10% compared to 2020. The aftermarket sales, like I said, were up 18%, and the OE sales were down 16%, which is outperformance of 2 points. I'll come back on to that on next slide. And if we exclude the geographical mix is also in positive points. If we look at year-to-date sales were up 15% with close to EUR 13 billion. The aftermarket, like I said, is up 26%, and that is one of the contribution, not the only one -- what was the contribution to explain our EBITDA tightening up and the OEM sales are up 13%. Now if you look at the outperformance in Q3. The figures of EHS are minus 16%, Robert, minus...
18%.
Minus 18%, sorry. You have seen that in a worldwide basis, of course, minus 18%. You have seen what our customers have announced in the last few hours in what they delivered to the market. You know that the inventory is very close to 0. I was in the U.S. last week, and all our customers are saying we have no inventory. We know that it's the same in Europe. We know it's the same in the China. So assuming because there is no inventory that what is being delivered to the customers is a very close proxy to what has been produced. You have seen that first, again, is minus 24.4% compared to last year in Q3. [indiscernible] is minus 27%; Ford is minus 14%; GM, minus 27%; Renault, minus 22.3%, BMW, minus 12.2%; Daimler, minus 30%; and Toyota, minus 20%. So you see all those figures show that it's very, very difficult to reconciliate the minus 18% to what we read from the announcement of our customers. So it is what it is. It is a time when -- we know what we have delivered our sales to our OE and to our aftermarket customers. But what is exactly the production level, I think, it's quite difficult. And I take 2 examples. If you go to the next page, where you see our outperformance in the different parts of the Asian countries. Our outperformance in Japan is 25 points. Why? Only because our market share in Japan, we are quite a big market share outside of Japan, the market share in Japan is relatively small. And Toyota reduced dramatically its production. So it has a positive impact on our performance which is kind of [ products ]. And if you take the previous page, Page 9, we have only 3 points outperformance in North America, only because our exposure to the light truck, what we call [ T16 ] in GM is extremely high. And unfortunately, they have to slow down their production of that product. So you see only with 2 examples speaking about outperformance in that very volatile world is quite difficult. So it is what it is. But you have seen something probably and you'll have probably questions about that. You have seen that most of our customers are really stating that the situation of the semiconductor supply is improving. You know that Q3 has been very impacted by COVID in Malaysia, in Thailand, in Vietnam, but mainly Malaysia where there were some administrative shutdown, and that has put a stress in the supply of semiconductor. Since September, early September or first half of September, things are improving step by step and has [ carrier ] improving in October. And when we look at our own supply from our suppliers and to the market. We see a clear improvement, and we are very, very happy to see that, that has been confirmed in the announcement from our customers. No few pages on our business in the powertrain, which is, of course, both transmission and [ AFX ] system. Our content per car, moving forward to the future with Electrification is a content per car that can be multiplied by 2 with, of course, a strong position in 48-volt and for the transmission, a very strong position in the aftermarket. When it goes through Valeo Siemens, I spoke about the [ 750 million ] of sales in 2021, which is an increase of 45%, but lower than what we had expected. We have we are very confident to get 4 billion orders in the year 2021, 2022, and the community of orders that we got is [ EUR 12 billion ]. And you see some of the costs that we are doing here. In the thermal system, I told you in the call in July that we are probably not enough spoken about the incredible evolution of that business moving towards electrification. We have a very good product in terms of battery cooling, in terms of e-compressor, in terms of it pump, in terms of eater. The content per car could be multiplied by 3 when we move to electrification. We have had in the year-to-date, 60% of our orders which are linked to the EV. And the margin -- because the number of players with the competence we are having is much lower, the margins either. And the last business being contract and trading assistance. You know that we are in terms of both detection and perception that all the sensors and the related software #1 worldwide. We have EUR 14 billion of orders cumulated orders between 2018 and June 2021. That is a very fast growing business. And we are happy to, of course, carry on developing that business and in the visibility where we are also #1 worldwide. We have a book-to-bill in H1 of 1.6. It contributes, of course, to sustainability, and there is a lot of evolution in the technology. And like in all other businesses, we have developed a technological platform. And now we are leveraging those technology platform moving forward, which allows us both to grow and to increase our margins. So that is the presentation. I wanted to give you -- I explained to you why we have been able to tighten upward our EBITDA margin. We feel extremely comfortable with that new target. And I'm ready to answer a few questions if you want.
[Operator Instructions] We already have one question from Victoria Greer from Morgan Stanley.
A couple of things, please. Firstly, on the guidance, the way that you have been firming the layout of the guidance before, so the EUR 18.2 billion revenue and 13.4% EBITDA margin target was that you were showing it as a range, but really the -- sorry, EUR 18.2 billion and the 13.4% was your base case. Should we think about that now or still for the lowered guidance? Or should we really be thinking more about the midpoint of the new guidance when we think about the numbers you're pointing us to. The second question on Valeo Siemens, I understood, obviously, all the factors that are meaning that the losses probably will not now improve in 2021 year-over-year. Could you point us towards any way of thinking about your 2022 target for breakeven for Valeo Siemens.
So for the first question, in terms of sales between [ 16.9% and 17.2%], I hope that Robert will not say something different. But I think we should be on the upper side, even though it's quite difficult for the time being to make some forecast. The month of October is more or less in line with our provision. The beginning of the month was lower. The end of the month is quite in line. So -- and so we think we'll be on the upper side and the turnover. Concerning 2022, in those circumstances, I think we cannot say anything. We cannot say anything about the market. We can't say anything about the raw material price. So I will not answer any question on 2022. Like I said last time we spoke together, Christophe Perillat, my successor, will host probably before summertime when we see clearly what is going to happen new CMD with all of you to set what we think will happen in the years to come. We have been right until now not to confirm anything about 2022. We don't even know what will be the turnover next year. Maybe not there at all of other markets. Maybe a comment on the market. I don't criticize EHS. It's extremely difficult to make any forecast nowadays, and have tried to compare what our customers were seeing on their delivery and which is, I think, in Q3, a relatively good proxy in what could have been the production. One of the topic when we speak with our customer that -- and again, I don't know, and we have not started our budget process yet. But -- all our customers are complaining that there is no inventory in the market, no inventory told in the market. So whatever the sales of our customers will be, the production will have to be higher than the sales because the business cannot work with such a level of inventory. I know that the forecast of EHS for next year is 82.6 million cars. Is that including or not the reconstitution of a minimum level of inventory. We don't have that clear idea. So first, we need to know what will be the market, global market. Then we'll have to know what will be the electrification, and I think the electrification will be quicker than we had anticipated. And then we'll have to look at what could be our P&L. So there is lots of work to do from now on to be able to say anything about 2022.
Okay. And so for the 2021 guidance, you would really point us towards the 17.2 number for the revenue line. For the margin, should we be thinking really that you're pointing us towards the 13.4%? Or should we think about the midpoint of 13% to 13.4% for 2021?
If you want to be cautious, take the middle point. If you want to be optimistic, take the upper point.
Okay. Okay. But you're not framing the guidance really now as you were before and saying, okay, here is the top line, and this is the guidance, but there's a scenario that it gets worse. It's more like a normal way of guiding where you give us a range, and we think about the midpoint for the margin.
Yes. Exactly, exactly. That's still too many uncertainties. It seems run well that we could be in the upper range. But if something bad happens, which we also you don't know. So it's too far too complex. We are very, very sure of 13% to 13.4%. Being cautious, you should take the midpoint, but I don't exclude that we can go up to the upper range. As I said, I don't want to be more precise than that.
Okay. Okay. And for Valeo Siemens, I think to sum all that up, we shouldn't think really that the target to be breakeven for the JV contribution for 2022 is still standing because there's too much uncertainty. Is that's the message?
Lots of uncertainties at that stage. And therefore, there will be an improvement. Clearly, that is improvement compared to this year. But quantifying it at that stage, I think it wouldn't be the way we want to guide you and be very, very precise. For 2022 in all automotive buses, there are too many certainties so far. And therefore, we are extremely happy that we never confirm -- we never denied, but we never confirmed 2022 guidance because it's far too uncertain for the time being. But we are very, very short term, like I said at the beginning, our teams are doing a fantastic job for the site team are doing a [indiscernible] plant. So we have a very, very good position to capture for the upwards opportunity we have next year.
We have another question from José Asumendi, JPMorgan.
It's José, JP Morgan. Jacques, as an initial comment, I think you will go down as part of the, I think, very few suppliers of -- not the only supplier that's managing to up the guidance in this kind of a market environment. So well done on that one. And that's because few are surprised, including me. So I just wanted to see if you could comment on a few topics. I think the first one, can you comment a little bit what's going on by division, CVA, powertrain, thermal visibility, a little bit, what are you seeing in the business? And why is maybe are performing more or growing quicker than all the additions are there? And what it means to the product mix within the business as, obviously, CDA makes higher EBITDA margins than all the additional [indiscernible] there. That would be the first question, please.
The -- there was some comments few -- maybe 18 months ago at the depth of the crisis, that our customers would be so much concentrated in electrification that they would set aside everything linked to ADAS and to lighting, for example, that in what is in the design of the car. And you probably remember when we had the call mid-July. Today, we don't know. We don't know. It's too early. And then in the second half of the year, we saw that our customers were really balancing their R&D costs and their expenses, both, of course, on electrification because that is mandatory but also on the design that is impacting also a lot in the lighting business and another. So the idea that could have been in the market 1 year ago that wouldn't happen, and it's really happening the other way around. All our customers are increasing their -- and you can see it in writing, for example, for the [indiscernible], you have lots of new design of integrating a lot of lighting in the car to differentiate electric cars from normal cars. So what we are seeing since the end of last year, and we have seen that in the early part of this year, again now that our customers are concentrating a lot of part of the of their expenses and R&D expenses development on those areas which are impacting us ADAS and lighting. So I've seen extremely comfortable and always -- like always, it will be up and down, but that lighting ES and ADAS are the growing path.
Two questions, please, 2 follow-ups. I think one, can you talk about Siemens Valeo, where do we stand there? Are you still able to reduce losses on a year-on-year basis? What's the fishing take there? And then probably for your -- for a bit more longer-term medium term, but has there been any developments or communication with the OEMs, how they want to take the partnership with Siemens Valeo. That will be the second question. Third question, can you talk about LEONI partnership? I mean you know LEONI extremely well. You saw them in your wiring business, I remember some time ago. So you have -- you know the business extremely well, nib it that way. How should we read that connection with LEONI? LEONI on is, obviously, also selling some of the businesses out there. how can we see that partnership evolving in the next quarters?
It's a partnership. You know that in the new definition of the electrification and of the cars, the way to go to more central controller and so on. The -- we think that it's important for LEONI on one side. It's important for us on the other side when our customers want to have a full system that we partner with a worrying expect -- it's nothing less and nothing more than incredible successful. I think, I hope cooperation on the technical side and offering system to our customers. For Valeo Siemens, of course, there is a debate on whether our customers will reintegrate a part of the motor or not, that debate will probably always exist. But what we see as potential orders of program we are working on, they are rather increasing than decreasing. On motor, on EXL, on investor, on board charger, of course, the technology will move from [indiscernible] to silicon carbide step-by-step, and that we have forecasted it. So I'm sure that the potential of Valeo Siemens is impacted. You know that there will be a moment in May next year where Siemens can exercise [indiscernible]. No decision has been taken on our side yet. I don't know what will be the decision of Siemens per definition. We'll know it at the end of the process. What I always said is whatever the decision of Siemens is, we'll be ready to take forward [indiscernible]. We'll have a balance sheet, we'll have the plan. And -- but again, we have not taken our decision yet, and we don't know what Siemens will do.
I didn't get the message. Are the losses coming down this year versus last year? Is -- that's in the plan, yes?
Yes, yes, next year. Whatever happens, the losses will go down.
And this year as well versus last year?
No, no. What I said is the contribution will be more or less at the same level. So it will be slightly level, but you should take into consideration that it will be at the same level. I think it will be a few millions less. But we -- because of the market and the volumes being lower than we had anticipated, and that is the information that we got in the last month?
Yes. In the course of the month of September. So we have a sharp reduction...
Sharp reduction from our main customer, so we have to take it into consideration. Will it be better at the end of the year, I don't know, but we prefer to tell you that it should be the same order of magnitude.
Our next question comes from Christoph Laskawi from Deutsche Bank.
The first one would be on your negotiations with the OEMs on passing through a bit of fright energy and other cost inflation. Is there any update that you could give us in the sense that they will accept what you try to negotiate? And could we expect an impact in Q4? Or have you already seen one in Q3. And then the second question would be on your comment that your plants are running actually pretty smooth despite the volatility of the customers. Is that the same in Q4? And we've seen other supply commenting that there have been quite severe stop days also in their production because of their OEMs. And do you see differences by region, if you could update on that would be great.
Maybe I will start with the second question. I never said that I am happy that we have such a volatility. We don't like it. Some of our customers are very cynical and they [indiscernible] us at the very last moment. Some are planning much better than the others. Don't ask me what customers are in the first category and what customers are in the second category, I will not tell you. But what I wanted to say is that -- the technical performance has been the quality of the launch, the cost of non-quality, the use of the factory and our asset, the connection between R&D and production. After that, enormous wave of new product that we had launched in 2019 and 2020, the tilted [indiscernible]. It is the true season at the beginning of the year, but improved step by step. Again improved in Q3. When we look at the performance in October, they are very much in line with what we have experienced in September. So I would take as an assumption that Q4 should be at the same level or still improving. Again, we are suffering because of the volatility. That is one thing. But all the KPI linked to the new projects and the new innovation, which is now clearly behind us, makes the fact that globally, things are moving much, much better than we are anticipating at the beginning of the year. And that's what we had in the previous years. On the pass-through, the -- I'll tell you very simply, the -- and 2 things. First, all the costs that we have been occurred until end of September have been one way or the other compensated by our customers. And when I told you at the beginning of the call that the EUR 80 million we have taken as trying to anticipate what would be net of our customer compensation would be at the same -- at the right level. So both are -- what will happen in the future, I don't know, because you know that we are not at the end of the cost increase. But we -- what we -- and the cost we have occurred so far are totally compensated by customers. Robert, do you want to add something?
Yes. Just we have been able to compensate the costs. But the EUR 80 million.
But the EUR 80 million.
The EUR 80 million. And when we look at the EUR 80 million, in fact, today, the gross costs are higher than what we expected as we were expecting at the beginning of the year, but we have been able to increase the level of compensation from the customer. So the net remains around EUR 80 million.
Just a clarification follow-up, if I may. Because you have been talking about specifically, are those just the parts like the service that you source plus freight or already energy costs and...
Everything. It takes into account everything. Some raw material price increase, the freight cost increased. .
The book across the [indiscernible] ...
Yes, yes.
And is there -- are there certain prices that you have fixed for this year rolling into next year, which might go up just because you have yearly contracts? Or do you spot more or less for most of the stuff anyways?
When you speak about the stuff, is that purchasing or the price to...
Well, the freight that you might secure and also the energy customers like.
Well, it will depend. Some energy costs, we are very well protected until end of next year, Robert?
Yes. Contracts [indiscernible] power, which are long-term contracts.
For the freight, no, we are we need to plan very well because the difference between normal seafreight, which has increased a lot and the exceptional threat is extremely high. So our team need to forecast extremely well the freight, not to have...
To pay the spot rate.
The spot rate. but the prices are what they are. And our team, I said that at the very beginning, our supply team -- our supply chain team, our purchasing team, they're working extremely tightly together until now. And I see no reason why it should change, have been doing a forecasting job, which is recognized by all our customers that we have been able in a very uncertain environment to deliver them what they were needing, so.
We have another question from Gabriel Adler.
Just 2 questions left from my side. The first is on the JV again. Just wanted to confirm whether there's anything on the cost side that's impacting the lower guidance? Have you increased R&D, for example? Or is this wholly being driven by the sale down in revenue that you mentioned in the presentation? And can you update us on your expectations for when when Siemens might exercise its perception, unless it happens whilst the JV is still at loss-making at an EBITDA level. Will you have to pay Siemens for those? That's my first question.
So I will not answer the second part of the question. I've already answered it so many times. For the first question, no, it's the change of of forecasting the contribution of Siemens is 100% linked to the volume reduction from our customers, nothing else.
Okay. And then my second one, just on the free cash flow guidance. Could you maybe explain what's offsetting the lower earnings that means you've confirmed free cash flow target? Is it lower CapEx predominantly?
On the positive side, there is a fact that the -- we'll reduce more than expected the CapEx, recorded CapEx this year. We have reduced more than expected the cash R&D. The -- there'll be 2 uncertainties: One is the inventory. There is no miracle to deliver our customers who have obliged to increase slightly our inventory. But the main topic is the net between receivable and payable. We have a negative working capital, structurally negative working capital. So when the sales were down, we consume cash. And when the sales goes up, we don't consume case. So we cannot be more precise because we don't know the profile of the sales in the next few months. And I don't worry a lot because if it is -- first, I don't know where it will be in the range. But it is something that if we don't recover that salary between receivable and payable, we recover it in January next year, so it's not a [indiscernible]. So that's the reason why we have been able to tighten the EBITDA margin, but not as much as the working capital margin as a matter of fact, because the reduction of CapEx and cash R&D will more than offset the increase of inventory, but everything will be played with...
Payable and receivable.
Payable and receivable. It will all depend on the evolution of the sales. So I'm not worried about that. It's only mechanical. But I cannot tell you if it will be recovered until the end of the year, what part of it will be recovered until the end of the year or early next year. As a matter of fact, [indiscernible] for value doesn't matter. Robert, do you want to add something?
No, no, that's exactly is a point. We have made a forecast for something on sales, but there is still a lot of volatility around this forecast. So this is the reason why we prefer to maintain the current range in terms of free cash flow because there are still a lot of uncertainties in terms of activity, but also in terms of our ability to control the reduction of inventories.
Our next question comes from Thomas Besson from Kepler Chevreux.
It's Thomas Besson from Kepler Chevreux. I have 2 questions. The first is on the guidance for revenue. When I look at the...
I didn't -- the guidance for what?
For revenues -- sorry. When I look at EUR 17.2 billion revenues, implicitly in Q4, you would have a bigger revenue decline than in Q3, so I think 13% or 14% versus 10%. So I wanted to understand why you're guiding for a bigger revenue decline in Q4 and Q3? And the second question, maybe now for Robert. On the EBITDA, I would like, if it's possible to know what you do anticipate in terms of associated dividend included in the EBITDA and what you anticipate for depreciation because when you look at the change guidance. You reduced revenues by about EUR 1 billion, [ a year ago ], and we reduced EBITDA by EUR 134 million. So that implies a relatively low drop-through compared with what we normally have in that kind of situation. So one question on the EPC revenue decline in Q4. One question about the split of the EBITDA with associates and depreciation, please?
For the first question, when you make assumption when it's extremely volatile, you better be cautious. You remember, I've said that or the sales normally it should be at the upper side of the guidance. Could it be better? I hope it could be better. But we have to be extremely cautious on that timing. So take it the way it is. And you know me since quite some years now. You know I'm always very, very cautious and [indiscernible]. For the EBITDA because you have asked the question to Robert. I'll let...
For the EBITDA, Thomas, the level of dividend paid by the subsidiaries which are consolidated with the equity method is not that a big amount. We have seen that in H1, there was a reduction from 1 joint venture in China, which affected the level of EBITDA of powertrain system. It was a reduction compared to 2019 of EUR 40 million.For the second half of the year, the level of dividend will be very, very similar to the one we had in 2020. So we don't expect any significant change. And it's a minor impact we are speaking of, I would say, around EUR 10 million. So it's not at all a big -- a big topic for the EBITDA.
Okay. Do you mind giving us an indication on where depreciation should stand broadly for the year, please?
For the year, we consider that the level of depreciation and I make the sum of R&D depreciation and R&D amortization and depreciation of tangible CapEx, which should be around EUR 1.6 billion.
Our next question comes from Tom Narayan from RBC.
Tom Narayan from RBC. Your commentary earlier seemed to suggest maybe some optimism versus IHS maybe into 2022 despite the limited visibility. But we've been hearing some very dire comments specifically on magnesium, not just pass-through, but maybe that it could really halt production, especially for European OEMs. So curious what you're hearing on that. And then the next question, this quarter, OEMs have been seeing price and mix strength, particularly with premium brands. But curious how this translates to your business? Could this mean higher content per vehicle or your better ability to secure pricing from them? Or perhaps this is just a dynamic that benefits OEMs maybe more so than the suppliers?
No, the -- you are right. Maybe I didn't want to give any kind of optimism for 2022. What I wanted to suggest is that at that stage, answering any question on 2022 is extremely difficult. And one example is the fact that in the present forecast from EHS. And again, I don't know if it's a very, very difficult business of forecasting what is happening. So we don't know what kind of increase of inventory EHS have taken in their forecast. So try to convince that example. Of course, there are some other entities is how far the semiconductor crisis will improve. We have the impression that -- and we totally agree with what has been said by [indiscernible] and some others in the last few hours that things are improving. How far to improve with that later. We know that later because all of us, and you know that we are [indiscernible] another 3, another 4 of purchaser of semiconductor in the automotive world it will all depend how much of our customers' demand were able to secure. And things are -- or I'm not finished, but looking better now than it was looking a few weeks ago. So there are still a lot of uncertainties. I wanted to highlight a new one of them, taking into consideration the HH forecast, whether or not they are including some reconstitution of inventory from our customers. But some question mark, we have plenty of them and preparing a budget, having the business, unfortunately, since many, many mainly indicates. And it has never been so difficult to prepare a budget. So I cannot say a lot of things about this year. But I don't want to sound like being optimistic for 2022. I only wanted to say it's difficult to forecast at that stage because we have too many uncertainties. But of course, in February next year, we'll give you our guidance for 2022, that in 4 months.
And then the -- what are you -- are you hearing anything on this magnesium, how that could be the next big issue? Or are you not worried?
No. My business is to be optimistic when people are pessimistic and pessimistic when people are optimistic. There are lots of authorities today. Who would have thought only a few weeks ago, that there will be some power shortage in China. You wouldn't have expected it. I wouldn't have expected it. I lived in Brazil 30 years ago, and that is a country where you expect to have power shortage, but not in China. The magnesium is directly linked to the power supplier. So and probably some other geopolitical consideration. Is it something we take seriously? Of course, it's something we take seriously. And that is part of the uncertainties concerning next year.
Okay. And then in terms of price mix, the OEMs benefiting, is that something you guys can try to get in some way, maybe content per vehicle or pricing? Or does that just simply go to your OEM customers?
No, no, no. There are 2 questions in your question. The -- and we saw that in the first half of the year, the -- our customers were really trying to protect their higher-margin products like the Tier 1 Silverado and so on in the U.S. [ TM ], where we have a very, very strong content per car, and that was benefiting to us. So in terms of content per car, the fact that our customers are really putting into consideration protecting the higher range is normally positive for us. For the pricing, it's a permanent fight, will be -- get compensation from our customers. The fact that we have been, I'll say, extremely good, I say it that way, and not being too shy. In the supply chain and the fact that we have been able to deliver, put us ahead of some of our competitors who have been extremely delinquent in that period in terms of getting compensation. I think we -- I'm going to take the last question, and then we will stop the call. So 1 last question, please.
Next question comes from Giulio Pescatore, Exane.
One...
And so I think the last one.
I was getting scared. Going back on the D&A point, thanks for giving us that indication. Am I right in thinking that, that's pretty much the same amount that you are expecting at the beginning of the year?
For -- what for?
The D&A.
For D&A, depreciation and amortization. Yes, yes, there is no main...
Yes, yes -- [ no bit ] of sense.
Because, I mean, you compare yourself to some of your competitors, which are -- I mean, you are doing a great job operation. I mean there is no doubt. But a lot of your peers actually guide on EBIT and am I right in thinking that your EBIT margin is actually lower than what you thought it was going to be at the beginning of the year, missing something, sorry?
No, no, no. If you want to say that our EBITDA margin is higher than our competitors, I would agree. You probably know that we are depreciating now the capitalized R&D. -- and that the spread between capitalized R&D and depreciation of R&D is now close to -- so you cannot criticize us when the -- we are capitalizing much more R&D than we are amortizing and criticize us when we are depreciating the same level of capitalization of R&D and the spread being 0. We have one or the other.
So we have spent a time when we are capitalizing and increasing our capital, what some of our competitors and you know exactly who is doing for the time being, which has a positive impact in its EBIT. We are now depreciating it, which has a negative impact on our EBIT and a positive impact on our EBITDA. I think for a few years, the EBITDA will -- and I told you that since 2 years now, it's a better proxy of the improvement of our operations. Now when you compare, you have to compare EBITDA and EBIT and you have to compare the capitalized of every player and see in what part of your evolution you are, we are now -- it's behind us a time when we are capitalizing more than we were depreciating. Now we are depreciating the same level of what we are capitalizing over the spread between gross is very close to 0. So we are -- and it has a very, very positive impact in the cash R&D. So you have to compare everything. But if you want to let me say that our EBIT is lower for [indiscernible]. Our EBITDA is higher. Yes, they are capitalizing much more than we are doing. And now our spread between capitalization and depreciation is 0 or close to 0.
The second question on the JV with Siemens. I mean, from the perspective of Siemens, given how the structure of the option work, are you finding it difficult to maybe spend on R&D, what you would need to maybe drive innovation and remain competitive given that -- I mean Siemens knows that the JV is going to be in your hands in a year or 2? Are you finding it a bit more complicated to invest?
No, no. I've said that several times, it's a forced [indiscernible] we have a JV with Siemens. are extremely fair partners. Robert is on the board. He's the Vice Chairman of the Board. We have named CEO with an extremely fair partner. The Board of Director is working extremely seriously to take the best opportunities of what is happening in the market. So we have never had any conflict at the board level between Valeo Siemens, never.Robert, do you want to...
No, I can confirm the way the Board of Directors is working is very cooperative and the joint venture is not at all affected by what -- by the concerns that you are raising. In fact, those concerns doesn't -- do not exist, sorry.
Okay. So thank you very much for attending our call. Like I said, in a very adverse situation, I think our team did a fantastic job. One of you said that we are not the only one, but -- I think [ Joe ] said that one of the very few that are able to confirm or to increase the guidance, we are doing it. And it's not thanks to me, thanks to the incredible team that Valeo is having. So thanks a lot, and see you sometimes.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.