2014 HALF-YEAR FINANCIAL REPORT

Contents

1

GROUP PROFILE AND

CORPORATE GOVERNANCE

1

2

KEY FIGURES

2

3

INTERIM MANAGEMENT REPORT

5

3.1 Order intake 5

3.2 Sales 5

3.3 Earnings 7

3.4 Cash flow and financial structure 8

3.5 Segment reporting 9

3.6 2014 outlook 10

3.7 Highlights 10

3.8 Stock market data 12

3.9 Risk factors and related party transactions 14

4

CONDENSED INTERIM

CONSOLIDATED FINANCIAL

STATEMENTS FOR THE SIX MONTHS

ENDED JUNE 30, 2014

15

4.1 Consolidated statement of income 16

4.2 Consolidated statement of comprehensive income 17

4.3 Consolidated statement of financial position 18

4.4 Consolidated statement of cash flows 19

4.5 Consolidated statement of changes

in stockholders’ equity 20

4.6 Notes to the condensed interim

consolidated financial statements 22

5

STATUTORY AUDITORS’ REVIEW

REPORT ON THE HALF-YEARLY

FINANCIAL INFORMATION

46

5.1 Conclusion on the financial statements 46

5.2 Specific verification 46

6

STATEMENT BY THE PERSON

RESPONSIBLE FOR THE HALF-YEAR

FINANCIAL REPORT

47

FINANCIAL GLOSSARY 48

PRODUCT GLOSSARY 49

SAFE HARBOR STATEMENT 50

FullLED lighting system

The FullLED lighting system is fitted on the new Cadillac Escalade in the United States.

1

GROUP PROFILE

AND CORPORATE

GOVERNANCE

Valeo is an automotive supplier, partner to all automakers worldwide. As a technology company, Valeo proposes innovative products and systems that contribute to the reduction of CO₂ emissions and to the development of intuitive driving.

In 2013, the Group generated sales of 12.1 billion euros and invested over 10% of its original equipment sales in research and development. Valeo has 123 plants, 16 research centers, 34 development centers, 12 distribution platforms and employs 78,600 people in 29 countries worldwide.

Valeo is listed on the Paris Stock Exchange and is a member of the CAC 40 index.

Board of Directors

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y

Pascal Colombani Chairman

y

y

Jacques Aschenbroich Chief Executive Officer

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y

Gérard Blanc

y

y

Daniel Camus

y

y

Jérôme Contamine

y

y

Sophie Dutordoir

y

y

Michel de Fabiani

y

y

Michael Jay

y

y

Noëlle Lenoir

y

y

Thierry Moulonguet

y

y

Georges Pauget

y

y

Ulrike Steinhorst

Committees

Audit & Risks Committee

y

y

Daniel Camus Chairman

y

y

Michel de Fabiani

y

y

Noëlle Lenoir

y

y

Thierry Moulonguet

Appointment, Compensation

& Governance Committee

y

y

Georges Pauget Chairman

y

y

Michel de Fabiani

y

y

Michael Jay

y

y

Ulrike Steinhorst

Strategy Committee

y

y

Jérôme Contamine Chairman

y

y

Gérard Blanc

y

y

Sophie Dutordoir

y

y

Thierry Moulonguet

y

y

Georges Pauget

2

KEY FIGURES

Order intake

(1)

In billions of euros

Geographic and client positioning

Order intake (1) _{is driven by:}

● innovative products and systems (30% of order intake); and ● accelerated expansion in Asia (41% of order intake).

Sales

In millions of euros

Sales by market

As a % of sales

Breakdown of original equipment sales by customer

As a % of original equipment sales, including joint ventures consolidated proportionally

Breakdown of original equipment sales by destination

In millions of euros and as a % of original equipment sales, including joint ventures consolidated proportionally

H1 – 2013 H1 – 2014 7.3

9.1

H1 – 2013 (_*) _{H1 – 2014} 5,944

6,347

15%

Aftermarket(2)

85%

Original equipment

€6,347

million

Asia Europe South America North America 5% 19% 24% 52% 3% 20% 26% 51% H1 – 2013 H1 – 2014

30%

German

17%

French

22%

American

26%

Asian

5%

Other

Europe and Africa

51%

20%

North America

3%

South America

26%

KEY FIGURES

2

Research and Development expenditure, net

In millions of euros and as a % of sales, net of customer contributions, subsidies and tax credits

Net attributable income

In millions of euros and as a % of sales

Operating margin

(1)

In millions of euros and as a % of sales, including share in net earnings of equity-accounted companies

Industry data

Breakdown of sales by Business Group

In millions of euros and as a % of sales EBITDA

(1) _{by Business Group}

In millions of euros

Basic earnings per share

In euros 5.5% 5.3% H1 – 2013 (_*) _{H1 – 2014} 318

350

7.0% 6.4% H1 – 2013 (_*) _{H1 – 2014} 383

442

4.1% 3.2% H1 – 2013 H1 – 2014 190

262

H1 – 2013 H1 – 2014 2.48

3.37

H1 – 2013 (_*) _{H1 – 2014} 5,944

6,347

25% 20% 28% 27% 28% 18% 28% 26% H1 – 2013 (_*) _{H1 – 2014} 145 4 150 194 173 168 2 160 200 210 666

740

740

Thermal Systems

Powertrain Systems Comfort & Driving

Assistance Systems Visibility Systems Others (*) Figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013

KEY FIGURES

2

Cash flow and financial structure

EBITDA(1)

In millions of euros and as a % of sales

ROA (Return on Assets)(1)

Other profitability indicators

ROCE (Return on Capital Employed)(1)

Investments

In millions of euros and as a % of sales

Free cash flow(1)

In millions of euros

Net debt(1)

In millions of euros and as a % of consolidated stockholders' equity, excluding non-controlling interests

After the dividend payment, the acquisition of Osram's 50% stake in joint venture Valeo Sylvania and the share buyback program.

H1 – 2013 (_*) _{H1 – 2014} 133

153

11.7% 11.2% H1 – 2013 (_*) _{H1 – 2014} 666

740

7.1% 7.1% H1 – 2013 (_*) _{H1 – 2014} 421

451

H1 – 2013 (_*) _{H1 – 2014} 28%

29%

22% 21% H1 – 2013 (_*) _{H1 – 2014} 446

525

H1 – 2013 (_*) _{H1 – 2014} 18%

19%

3

INTERIM MANAGEMENT

REPORT

3.1 Order intake

(1)

The order intake surged 25% in the first half of 2014 to 9.1 billion euros, balanced between Asia (41%, including China which alone accounts for 27% of the order intake worldwide),

Europe (40%) and the rest of the world, confirming the Group's high growth potential. In addition, innovative products accounted for 30% of the order intake worldwide.

3.2 Sales

Global automotive production up 4% despite

the sharp decline in production in South America

Growth in automotive production was balanced across the

main production regions. Production rose in Asia (up 6%), driven by China (up 11%), and benefited from the recovery

in Europe (up 4%) and continued growth in North America (up 3%). Production in South America fell sharply however (down 17%).

In the first half of the year, sales were up 10%

on a like-for-like basis

Consolidated sales came in at 6,347 million euros, up 10% on a like-for-like basis (7% as reported)

Changes in exchange rates and Group structure had a negative impact of 3.1% and a positive impact of 0.4%, respectively:

y

y

changes in exchange rates reflect the significant depreciation of emerging-market currencies as well as the yen and the dollar against the euro;

y

y

changes in Group structure were mainly attributable to the sale of the Access Mechanisms business (effective April 30, 2013) and the acquisition (effective January 1, 2014) of Osram's 50% stake in joint venture Valeo  Sylvania, which is now fully consolidated.

Sales

(in millions of euros)

First-half First-quarter Second-quarter

2014 2013(_*) _{% change} % change on a like-for-like basis % change on a like-for-like basis % change on a like-for-like basis TOTAL 6,347 5,944 +7% +10% +11% +8% of which:

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y

Original equipment 5,432 5,037 +8% +10% +13% +8%

y

y

Aftermarket 753 749 +1% +3% +4% +2%

y

y

Miscellaneous 162 158 +3% +16% -13% +43%

(*) Sales figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, 2014.

INTERIM MANAGEMENT REPORT

Sales

3

Original equipment sales came out at 5,432 million euros (85% of total sales), up 10% on a like-for-like basis. This performance reflects the gradual entry into production of the high order intake recorded by the Group over the last three years.

In the second quarter, 8% like-for-like growth reflects a high prior-period comparison basis due to the upturn in global automotive production as from the second quarter of 2013.

Aftermarket sales (12% of total sales) advanced 3% on a like-for-like basis on the back of continued expansion in Asia and emerging countries and despite unfavorable climatic conditions in Europe adversely affecting the Group's business.

Miscellaneous sales (3% of total sales), mainly consisting of tooling revenues related to the launch of new projects, increased by 16% like for like.

Original equipment sales jumped 10% on a like-for-like basis

(including 36% growth in China), beating global automotive

production by nearly 7 percentage points

Valeo delivered market-beating growth in all production regions, buoyed by its improved product mix combined with technical innovations (new functionalities and market penetration of the Group's CO₂ emissions reduction and intuitive driving technologies), its positioning with regard

to German and Asian customers, the growth of its business in Asia and emerging countries, and market share gains in North America. This reflects the gradual entry into production of the high order intake over the last three years.

Original equipment sales

(by destination, in millions of euros)

First-half

2014 2013(1)

Original equipment sales growth(2)

Automotive production

sales growth(3) _{Market outperformance}

TOTAL 5,432 5,037 +10.3% +3.6% +6.7 PTS

Europe and Africa 2,834 2,722 +10% +4% +6 pts

North America 1,101 897 +6% +3% +3 pts

Asia (excl. China),

Middle East & Oceania 695 660 +10% +2% +8 pts

China 615 477 +36% +11% +25 pts

South America 187 281 -13% -17% +4 pts

(1) Sales figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, 2014.

(2) Like-for-like. (3) LMC & Valeo estimates.

The Group consistently outperformed the market in the main automotive production regions with the exception of China, where original equipment sales growth largely outpaced production in the region (up 25 percentage points).

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y

In China, original equipment sales were up 36% on a like-for-like basis, beating automotive production by 25  percentage points reflecting the Group's high level of investments in this region and the gradual entry into production of the high order intake over the past few years;

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y

In Europe (including Africa), like-for-like original equipment sales rose 10%, beating automotive production by 6 percentage points, driven by the appeal of Valeo's portfolio of high-tech products and a favorable customer mix;

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y

In North America, like-for-like original equipment sales climbed 6%, outpacing automotive production by 3 percentage points, thanks to a favorable customer mix and market share gains.

INTERIM MANAGEMENT REPORT

Earnings

3

Geographic repositioning

(1)

In the first half of 2014, Valeo continued to realign its businesses geographically:

y

y

the share of total original equipment sales produced in Asia and emerging countries (including Eastern Europe and Mexico) accounted for 53%;

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y

the share of original equipment sales produced in North America increased by 3 percentage points to 20%;

y

y

the share of original equipment sales produced in Western Europe decreased by 1 percentage point to 37%.

Balanced customer portfolio

(1)

German and Asian customers' contribution remained stable

at 30% and 26% of original equipment sales, respectively. American customers accounted for 22% of original equipment sales, up by 2 percentage points. French customers accounted for 17% of original equipment sales.

3.3 Earnings

Operating margin

(2)

up 15% to 442 million euros,

or 7.0% of sales; Net income up 38% to 262 million euros,

or 4.1% of sales

Gross margin advanced 7% on first-half 2013 to 1,086  million  euros, or 17.1% of sales, up 0.1 percentage points on first-half 2013, reflecting:

y

y

a positive volume effect (impact of 0.8 percentage points);

y

y

economic difficulties in South America leading to the depreciation of local currencies, particularly the Brazilian real, and the 17% decline in production volume (negative impact of 0.3 percentage points);

y

y

increases in depreciation and production overheads necessary for the launch of new projects against a backdrop of strong organic growth (negative impact of 0.2 percentage points).

Operating margin(2) _{increased 15% on first-half  2013 to} 442 million euros, or 7.0% of sales, up 0.6 percentage points, reflecting:

y

y

sound management of selling and administrative expenses offsetting the increase in net research and development (R&D) expenditure required to support growth:

y

ƒselling and administrative expenses increased 3% to

326 million euros, or 5.1% of sales, down 0.2 percentage points on first-half  2013. Administrative and general expenses alone represented 3.5% of sales in first-half 2014,

y

ƒValeo is continuing its R&D efforts in response to the

high level of order intake. Net R&D expenditure rose 10% to 350 million euros, or 5.5% of sales, edging up by 0.2 percentage points compared with first-half 2013;

y

y

the remeasurement to fair value of the Group's previously-held interest in Valeo Sylvania and non-recurring expenses for a net impact of 15 million euros.

The Group’s operating income(3) _{advanced 19% to} 408 million euros, or 6.4% of sales, after taking into account other expenses, restructuring costs and impairment losses on non-current assets in the amount of 34 million euros.

(2) Including share in net earnings of equity-accounted companies, see Financial Glossary, page 48. Change in the presentation of the consolidated statement of income

With the application of IFRS 11, the Group changed the presentation of the consolidated statement of income with the definition of a new indicator "Operating margin including share in net earnings of equity-accounted companies" which not only includes the share in net earnings of associates but also the share in net earnings of joint ventures which are now accounted for by the equity method.

All companies consolidated using the equity method, either joint ventures or associates (which were already previously consolidated using the equity method), contribute to the Group's operations and belong to one of its four operating segments. As a result, the Group considered that it would be more appropriate to recognize the share in net earnings of equity-accounted companies within operating income.

Since the operating margin is one of the main indicators used to monitor the Group's performance, the share in net earnings of equity-accounted companies (1) Including joint ventures consolidated proportionally.

INTERIM MANAGEMENT REPORT

Cash flow and financial structure

3

The cost of net debt totaled 47 million euros, slightly down on first-half 2013.

Net income surged 38% compared to first-half 2013, coming in at 262 million euros, or 4.1% of sales. The effective tax rate came out at 21% following the recognition of a portion of deferred tax assets due to the improved profitability of the Group's North America-based operations.

Excluding non-recurring items, net income(1) _{increased 21%} on first-half 2013 to 278 million euros, or 4.4% of sales. The return on capital employed(1) _{(ROCE) and return on} assets(1) _{(ROA) increased by 1 percentage point to 29% and} 19%, respectively.

3.4 Cash flow and financial structure

Free cash flow of 153 million euros

In first-half 2014, the Group's free cash flow(1) _increased to 153  million euros compared with a free cash flow of 133 million euros for the same period in 2013, despite the increase in working capital requirement (35 million euros). This chiefly reflects:

y

y

an 11% increase in EBITDA(1) _{to 740 million euros (up} 0.5 percentage points);

y

y

contained investment outflows of 451 million euros (7.1% of sales) comprising:

y

ƒinvestments to increase production capacities totaling

294 million euros (recorded), in line with first-half 2013; and

y

ƒcapitalized development costs totaling 150 million euros

(recorded), or 2.4% of sales, in line with first-half 2013. Net cash flow(1) _{of - 292 million euros (net outflow) and reflects:}

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y

financial expenses totaling 64 million euros; and

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y

expenses related to other financial items amounting to 381  million euros, including in particular the dividend payment (141 million euros) in first-half 2014 (as opposed to the second half in previous years), the acquisition cost of Osram's 50% stake in joint venture Valeo Sylvania (110  million  euros) and the share buyback payment (74 million euros).

Strong financial position

Net debt(1) _{stood at 525 million euros at June 30, 2014 versus} 351 million euros at December 31, 2013 (446 million euros at June 30, 2013) including the dividend payment in first-half 2014, the acquisition cost of Osram's 50% stake in joint venture Valeo Sylvania and the share buyback program.

The leverage ratio (net debt/EBITDA) came out at 0.4 times EBITDA and the gearing ratio (net debt/stockholders' equity excluding non-controlling interests) stood at 22% of equity. At June 30, 2014, the Group’s debt had an average interest rate of 4.91% and an average maturity of 5.5 years.

INTERIM MANAGEMENT REPORT

Segment reporting

3

3.5 Segment reporting

Strong growth in the Comfort & Driving Assistance Systems

Business Group and consistent above-market growth

in each of the other Business Groups

As is the case for the consolidated Group, the sales performance for the Business Groups reflects the specific product, geographic and customer mix and the relative weighting of the aftermarket in their activity as a whole.

Sales(_*)

(in millions of euros)

First-half

2014 2013(_**) _{Sales growth OE sales growth on a like-for-like basis}

Comfort & Driving Assistance Systems 1,124 1,192 -6% +16%

Powertrain Systems 1,696 1,591 +7% +8%

Thermal Systems 1,814 1,703 +7% +10%

Visibility Systems 1,801 1,495 +20% +9%

(*) Including intersegment sales.

(**) Sales figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, 2014.

Sales for the Comfort & Driving Assistance Systems Business Group were impacted by the sale of the Access Mechanisms business (effective April  30,  2013). In first-half 2014, the Business Group's original equipment sales increased by 16% on a like-for-like basis, lifted by the market's growing interest in intuitive driving products (vision, radar and parking assistance systems). Like-for-like original equipment sales for the Powertrain Systems, Thermal Systems and Visibility Systems Business

Groups posted balanced growth of 8%, 10% and 9%, respectively, spurred by the ramp-up of innovative solutions which help to reduce CO₂ emissions using Stop-Start, air intake module and LED technology.

Total sales for the Visibility Systems Business Group increased 20% following the acquisition (effective January 1, 2014) of Osram's 50% stake in joint venture Valeo Sylvania, which is now fully consolidated.

In the first half of the year, EBITDA

(1)

came out

at 740 million euros, or 11.7% of sales

EBITDA

(in millions of euros)

First-half

2014 2013 (_*) _{% change}

Comfort & Driving Assistance Systems 160 150 +7%

as a % of sales +14.2% +12.6% +1.6 pts Powertrain Systems 210 173 +21% as a % of sales +12.4% +10.9% +1.5 pts Thermal Systems 200 194 +3% as a % of sales +11.0% +11.4% -0.4 pts Visibility Systems 168 145 +16% as a % of sales +9.3% +9.7% -0.4 pts

(*) The Business Groups' EBITDA figures for the six months ended June 30, 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, 2014.

Sales for the Visibility Systems Business Group are impacted by changes in accounting standards and changes in scope of consolidation relating to the acquisition of Osram's 50% stake in joint venture Valeo Sylvania, which has been fully consolidated as from January 1, 2014.

Based on a comparable scope of consolidation (full consolidation of Valeo Sylvania), the Visibility Systems Business Group's EBITDA margin would have been 8.1% of sales in first-half 2013 compared with the 9.7% margin reported. It would have increased by 1.2 percentage points in first-half 2014 to 9.3% of sales, reflecting the Business Group's,

INTERIM MANAGEMENT REPORT

2014 outlook

3

3.6 2014 outlook

Based on the following assumptions:

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y

global automotive production up by approximately 3% including an increase in automotive production in Europe of around 2%, and

y

y

raw material prices and currencies in line with current levels;

Valeo has set the following objectives for 2014:

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y

sales growth outperformance in the main production regions,

y

y

operating margin(1) _{slightly higher than 7% of sales.}

3.7 Highlights

3.7.1 Valeo joins the CAC 40 index

On June 23, 2014, Valeo joined the benchmark CAC 40 stock exchange index.

3.7.2 Debt management and ratings

In order to extend the average maturity of its debt and

take advantage of record low market interest rates, on January 22, 2014 Valeo issued a 700 million euro bond. This bond is redeemable in January 2024 and pays a coupon of 3.25%. The new bond issue allowed the Group to buy back and cancel 354 million euros worth of outstanding 2017 bonds and 227 million euros worth of outstanding 2018 bonds, by means of an exchange transaction,

On January 2, 2014, Moody’s confirmed Valeo's "Baa3” long-term corporate credit rating with a stable outlook and its “Prime-3" short-term corporate credit rating.

On April 3, 2014, Standard & Poor's confirmed Valeo's "BBB” long-term corporate credit rating with a stable outlook and its “A-2" short-term corporate credit rating.

3.7.3 Acquisitions and disposals

(2)

On January 9, 2014, an addendum to the partnership agreement signed with Valeo Samsung Thermal Systems Co. Ltd transferred control of this company to Valeo. Previously a joint venture, Valeo Samsung Thermal Systems Co. Ltd has been fully consolidated in the Group's consolidated financial statements as of this date. and contributed 21  million  euros to Group sales in the first half of 2014. On January 22, 2014, Valeo confirmed the closing of the acquisition of Osram’s 50% stake in Valeo Sylvania in accordance with the agreement announced on June 18, 2013. In early January 2014, Osram GmbH exercised its put option to sell Valeo its entire stake in their North American joint venture for a price of 104  million  US  dollars (equivalent to three times 2014 EBITDA as estimated by Valeo).

Valeo Sylvania is now fully owned by Valeo. The acquisition of the shares in Valeo Sylvania not already owned by the Group represents a major strategic step in bolstering Valeo's global leadership in automotive lighting systems. On February 18, 2014, Valeo completed the sale of its entire interest in India-based 50%-50% joint venture (part of the former Access Mechanisms business) to Minda Capital Limited. In July 2014, the Chinese authorities approved an addendum to the agreement signed with the joint venture Nanjing Valeo Clutch Co. Ltd which transferred control of this company to Valeo. Nanjing Valeo Clutch Co. Ltd will be fully consolidated in the Group’s consolidated financial statements as from July 1, 2014.

3.7.4 Opening of new sites

On February 19, 2014, Valeo opened a new plant in Oragadam,

India as part of its emerging market development strategy. On May 30, 2014, in line with the same development strategy, Valeo opened its 26th _{plant in China. The Shanghai-based} plant has a surface area of almost 80,000 sq.m, making it

INTERIM MANAGEMENT REPORT

Highlights

3

3.7.5 Innovations and awards

As a major focus of Valeo's development strategy, innovation represents nearly a third of the Group's order intake. For the second year in a row, Valeo was named one of the 100 most innovative companies in the world in Thomson-Reuters’ list of the Top 100 Global Innovators in 2013.

To meet motorists’ expectations, Valeo focuses on developing products that reduce CO₂ emissions, and “intuitive driving”, which brings together the connected vehicle, autonomous driving and the human-machine interface for the mass market. The purpose of the main technological developments is to improve the efficiency of internal combustion engines, electrify powertrains, reduce the amount of energy used by the vehicle’s various functions, develop lighter components and improve passenger and driver safety.

Cooperation agreement

Valeo signed a cooperation, development and license agreement with LeddarTech, a manufacturer of detection and ranging solutions combining infrared LED and time-of-flight measurement technology. This agreement will enable Valeo to offer its automaker customers new active safety solutions, particularly in the field of emergency braking in urban areas.

On June 18, Valeo and Safran gave a progress report on the research partnership signed in September 2013: a 360° close-range visibility device for military vehicles, based on Valeo technology, and a driver attention monitoring system using Safran's image recognition technology. Valeo also plans to use infrared imaging, a technology in which Safran is market leader, to improve driver visibility in difficult conditions, such as at night or in fog. This will allow Valeo to serve automakers whose vehicles need to be able to detect pedestrians at night in order to receive a favorable Euro NCAP(1) _rating.

A strong presence at industry trade

shows

For the first time ever, Valeo took part in the 2014 Consumer Electronics Show (CES), which was held in Las Vegas from January 6 to 10. The Group made an impression with its Valet Park4U® _{system, which allows drivers to leave their car at} the entrance of a car park and let the car find a suitable space to park itself, by simply activating the automatic parking feature remotely using their smartphone.

In another first, the Group also attended the Automotive World Show in Tokyo from January 15 to 17. Valeo showcased a demo car fitted with a Laser Scanner, a solution used to detect and distinguish stationary objects from pedestrians. This technology is a key component of emergency braking systems, which are to be included as part of Euro NCAP's(1) ratings as of 2014.

From April 20 to 29, Valeo attended the Auto China motor show in Beijing, where the Group, which celebrates 20 years in China this year, presented the main innovations it will be using as a springboard for its expansion in Asia and, in particular, China. These innovations include the i-StARS Stop-Start  system(1)_{, the FullLED lighting systems}(1)_{, the} e-Skin2 console(1) _{as well as solutions to improve in-vehicle} air quality.

Valeo also attended the Automotive Engineering Exposition in Pacifico Yokohama, Japan, a trade show dedicated entirely to industry professionals. The Group presented its latest innovations, including the Laser Scanner, the Themis valve(1) and the electric supercharger(1)_.

Tech Days and Ride & Drive

In the first half of 2014, Valeo organized more "Tech Days" and "Ride & Drive" events. The purpose of the events is to offer the Group’s customers the solutions best suited to each market:

y

y

on February 6, at a "Ride & Drive" event organized for Fiat Chrysler Automobiles in Turin, Valeo presented 14 demo cars fitted with innovative CO₂ emissions reduction, hybridization and intuitive driving solutions;

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y

on February 21, Valeo organized a "Tech Day" for Suzuki Motor Corporation in Japan in order to showcase its innovations in the fields of CO₂ reduction and intuitive driving. Valeo hopes to reap the benefits of Suzuki's growth strategy in India and emerging countries;

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y

on May 15, at its "Tech Day" at Dongfeng Peugeot Citroen Automobile Company (DPCA), Valeo presented its latest innovations that will support the Group's development in China;

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y

on June 4, Valeo organized a "Ride & Drive" with Toyota Motor Europe's R&D and Purchasing teams, during which the Group presented its technologies in the areas of engine efficiency, safety, comfort and driving assistance.

INTERIM MANAGEMENT REPORT

Stock market data

3

Awards

During first-half 2014, Valeo received several awards:

y

y

on March 13, Valeo received the technological breakthrough award from the journalists of the French Automotive Press Association (Association française de la presse automobile)

for its Valet Park4U® _system;

y

y

on April 7, Valeo received the PACE (Premier Automotive Suppliers' Contribution to Excellence) Award from Automotive News for its innovative "Back-Over Protection System", which offers the advantages of both ultrasonic park assist sensors and a rear camera, while providing added comfort and safety for reversing maneuvers:

y

y

on May 22, the Czechowice PTS plant in Poland received a Gold Award from Ford Motor Company for its performance in terms of quality, logistics and costs. This Valeo plant

manufactures starters for Ford Fiesta, B-Max, Focus, C-Max and Mondeo vehicles intended for the European, US and Asian markets;

y

y

on June 17, PSA Peugeot Citroën awarded Valeo four distinctions, comprising two "Best Plants of 2013" for the quality of communication with the PTS plant in Czechowice, Poland and the THS plant in Athis de l'Orne, France, a special distinction for Valeo's commitment to the automaker's "Back in the Race" plan and, finally, special recognition for Valeo's contribution to the Peugeot 308's "European Car of the Year" award.

Finally, on June 2, Valeo announced it would be launching the second edition of "Valeo Innovation Challenge" in which the Group offers young engineers worldwide the opportunity to create the equipment that will make cars more intelligent and intuitive by 2030, once again demonstrating the importance the Group places on research and development.

3.8 Stock market data

Share performance

During the first half of 2014, the average closing price of the Valeo share was 95.17 euros, with a high of 106.05 euros on March 5 and April 4 and a low of 78.67 euros on January 6. Over the first six months of the year, the Valeo share rose 22% from 80.43 euros on December 31, 2013 to a closing price of 98.09 euros on June 30, 2014.

The Valeo share (up 22%) outperformed the CAC 40 index (up 3%) by 19 percentage points. The share outperformed the DJSTOXX Auto index (up 6.5%) by 15.5 percentage points.

Changes in ownership structure

On June 30, the Company’s share capital comprised 79,462,540 shares, unchanged from December 31, 2013. In accordance with Article 223-11 et seq. of the General Regulation of the

French financial markets authority (Autorité des marchés financiers – AMF), the number of voting rights declared was

84,675,837. Excluding treasury stock, the number of voting rights comes out at 83,160,132.

To the best of the Company’s knowledge, its main shareholder is the Caisse des dépôts et consignations group including Bpifrance Participations (5.16% of share capital and 9.68% of voting rights).

At June 30, 2014, Valeo held 1,515,705 treasury shares (i.e., 1.91% of the share capital without voting rights) versus 1,819,722 shares at December 31, 2013 (2.29%).

Ownership structure at June 30, 2014

Caisse des Dépôts et consignations (CDC) including: 3.33%(6.25%) Bpi Participations SA (formerly FSI) 1.83% (3.43%) CDC Savings Funds

94.84%

Other(1) (90.32%)

5.16%

(9.68%)

Number

of shares

79,462,540

Number of voting rights

84,675,837

% of share capital (% of voting rights)

INTERIM MANAGEMENT REPORT

Stock market data

3

Stock market data

First-half 2014 2013 2012 2011

Market capitalization at period-end (in billions of euros) 7.79 6.39 2.99 2.43 Number of shares 79,462,540 79,462,540 79,462,540 79,269,596 Highest share price (in euros) 106.05 81.15 43.31 49.88 Lowest share price (in euros) 78.67 37.25 29.80 27.46 Average share price (in euros) 95.17 55.22 36.30 39.00 Share price at period-end (in euros) 98.09 80.43 37.64 30.71

Per share data

(in euros) First-half 2014 First-half 2013 First-half 2012 First-half 2011

Earnings per share 3.37 2.48 2.56 2.89

Earnings per share excluding non-recurring items 3.57 3.00 2.79 2.90

(in euros) 2014 2013 2012 2011

Net dividend - 1.70(1) _{1.50 1.40}

(1) Eligible for the 40% tax allowance provided for in Article 158-3-2° of the French Tax Code (Code Général des Impôts – CGI) and subject to a 21% flat-rate tax prepayment on distributed revenues, deducted at source by the paying agent (article 117 quarter i.1 of said Code and article 9 of the amending Finance Law for 2013). These figures are provided for information purposes only. Please contact your financial advisor to discuss the specific tax and social security treatment of your shares.

Share price and monthly trading volumes

26,000,000

20,000,000

15,000,000

10,000,000

5,000,000

Valeo STOXX 600 A&AP (European automobiles and parts index) CAC 40

Trading Volumes (Euronext and MTF) J F M A M J J A S O N D J F M A M J J A S O N D 2010 Euros 80 0 10 20 30 40 50 60 70 90 100 110 120 2011 2012 2013 2014 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J

INTERIM MANAGEMENT REPORT

Risk factors and related party transactions

3

Investor relations

Institutional shareholder relations

Contact

Thierry Lacorre

Financial Relations Director Valeo 43, rue Bayen 75848 Paris Cedex 17 France Tel: +33 (0)1 40 55 37 93 Fax: +33 (0)1 40 55 20 40 Email: [email protected]

Individual shareholder relations

Contact

Valeo 43, rue Bayen 75848 Paris Cedex 17 France Tel: +33 (0)800 814 045

(toll-free from landlines in France) Fax: +33 (0)1 40 55 20 40

Email: [email protected]

Provisional financial communication calendar

y

y

Third-quarter 2014 sales: October 21, 2014

y

y

Full-year 2014 results: second half of February 2015

y

y

First-quarter 2015 sales: second half of April 2015

y

y

First-half 2015 results: second half of July 2015

3.9 Risk factors and related party transactions

Risk factors

The risk factors are identical to those identified in Chapter 2 of the 2013 Registration Document.

Related party transactions

4

CONDENSED INTERIM

CONSOLIDATED FINANCIAL

STATEMENTS FOR THE SIX

MONTHS ENDED JUNE 30, 2014

4.1

CONSOLIDATED STATEMENT OF INCOME

16

4.2

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

17

4.3

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

18

4.4

CONSOLIDATED STATEMENT OF CASH FLOWS

19

4.5

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

20

4.6

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

21

Note 1

Accounting policies

21

Note 2

Scope of consolidation

28

Note 3

Segment reporting

31

Note 4

Operating data

33

Note 5

Personnel expenses and employee benefits

35

Note 6

Property, plant and equipment and intangible assets

36

Note 7

Other provisions and contingent liabilities

37

Note 8

Financing and financial instruments

38

Note 9

Associates and joint ventures

42

Note 10

Income taxes

43

Note 11

Stockholders' equity and share buyback program

44

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Consolidated statement of income

4

4.1 Consolidated statement of income

(in millions of euros) Notes First-half 2014

First-half 2013 restated(1) SALES 4.1 6,347 5,944 Cost of sales 4.2 (5,261) (4,933) GROSS MARGIN 1,086 1,011 % of sales 17.1% 17.0%

Research and Development expenditure, net 4.3 (350) (318)

Selling expenses (103) (97)

Administrative expenses (223) (221)

OPERATING MARGIN 410 375

% of sales 6.5% 6.3%

Share in net earnings of equity-accounted companies 9.1 32 8

OPERATING MARGIN including share in

net earnings of equity-accounted companies 442 383

% of sales 7.0% 6.4%

Other income and expenses 4.4 (34) (41)

OPERATING INCOME including share in

net earnings of equity-accounted companies 408 342

Interest expense 8.3.1 (52) (55)

Interest income 8.3.1 5 6

Other financial income and expenses 8.3.2 (20) (21)

INCOME BEFORE INCOME TAXES 341 272

Income taxes 10 (65) (68)

NET INCOME FOR THE PERIOD 276 204

Attributable to:

y

y

Owners of the Company 262 190

y

y

Non-controlling interests 14 14

Earnings per share:

y

y

Basic earnings per share (in euros) 3.37 2.48

y

y

Diluted earnings per share (in euros) 3.37 2.48

(1) The consolidated statement of income for first-half 2013 differs from that presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since it has been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis, and a change in the presentation of the share in net earnings of equity-accounted companies in the statement of income (see Notes 1.1.1 and 1.4).

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Consolidated statement of comprehensive income

4

4.2 Consolidated statement

of comprehensive income

(in millions of euros) First-half 2014

First-half 2013 restated(1)

NET INCOME FOR THE PERIOD 276 204

Share of changes in comprehensive income

from equity-accounted companies recycled to income 2 2

o/w income taxes -

-Translation adjustment 39 (92)

Cash flow hedges:

y

y

Gains (losses) taken to equity 6 (7)

y

y

(Gains) losses transferred to income for the period 3 2

o/w income taxes (1) 1

Remeasurement of available-for-sale financial assets -

-o/w income taxes -

-Other comprehensive income (loss) recycled to income 50 (95)

Share of changes in comprehensive income

from equity-accounted companies not recycled to income (4) 8

o/w income taxes -

-Actuarial gains (losses) on defined benefit plans (74) 53

o/w income taxes 16 (1)

Other comprehensive income (loss) not recycled to income (78) 61

OTHER COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX (28) (34)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 248 170

Attributable to:

y

y

Owners of the Company 229 162

y

y

Non-controlling interests 19 8

(1) The consolidated statement of comprehensive income for first-half 2013 differs from that presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since it has been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis (see Notes 1.1.1 and 1.4).

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Consolidated statement of financial position

4

4.3 Consolidated statement of financial position

(in millions of euros) Notes June 30, 2014

December 31, 2013 restated(1)

ASSETS

Goodwill(2) _{6.1 1,313 1,210}

Other intangible assets 915 829

Property, plant and equipment 2,284 2,080

Investments in equity-accounted companies 9.2 172 201

Other non-current financial assets 65 72

Deferred tax assets 285 238

NON-CURRENT ASSETS 5,034 4,630

Inventories, net 912 810

Accounts and notes receivable, net 1,777 1,460

Other current assets 381 402

Taxes recoverable 23 33

Other current financial assets 10 35

Cash and cash equivalents 8.1.3 1,408 1,500

Assets held for sale - 2

CURRENT ASSETS 4,511 4,242

TOTAL ASSETS 9,545 8,872

EQUITY AND LIABILITIES

Share capital 238 238

Additional paid-in capital 1,434 1,434

Translation adjustment 54 18

Retained earnings 687 691

STOCKHOLDERS’ EQUITY 2,413 2,381

Non-controlling interests 168 147

STOCKHOLDERS’ EQUITY INCLUDING NON-CONTROLLING INTERESTS 2,581 2,528

Provisions for pensions and other employee benefits – long-term portion 5.1 826 710

Other provisions – long-term portion 7.1 220 190

Long-term debt – long-term portion 8.1.2 1,524 1,491

Other financial liabilities – long-term portion 6 7

Subsidies and grants – long-term portion 25 24

Deferred tax liabilities 28 26

NON-CURRENT LIABILITIES 2,629 2,448

Accounts and notes payable 2,695 2,347

Provisions for pensions and other employee benefits – current portion 5.1 71 68

Other provisions – current portion 7.1 128 155

Subsidies and grants – current portion 7 13

Taxes payable 85 52

Other current liabilities 930 879

Current portion of long-term debt 8.1.2 87 108

Other financial liabilities – current portion 9 21

Short-term debt 8.1.1 323 253

CURRENT LIABILITIES 4,335 3,896

TOTAL EQUITY AND LIABILITIES 9,545 8,872

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Consolidated statement of cash flows

4

4.4 Consolidated statement of cash flows

(in millions of euros) Notes First-half 2014

First-half 2013 restated(1)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income for the period 276 204

Share in net earnings of equity-accounted companies (32) (8) Net dividends received from equity-accounted companies 21 14

Expenses (income) with no cash effect 12.1 336 312

Cost of net debt 47 48

Income taxes (current and deferred) 65 68

GROSS OPERATING CASH FLOWS 713 638

Income taxes paid (74) (67)

Changes in working capital 12.2 (7) 49

NET CASH FROM OPERATING ACTIVITIES 632 620

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of intangible assets (169) (154)

Acquisitions of property, plant and equipment (288) (273)

Disposals of property, plant and equipment and intangible assets 6 6

Net change in non-current financial assets - (8)

Acquisitions of investments with gain of control, net of cash acquired 12.3 (107) (1) Disposals of investments with loss of control, net of cash transferred 12.4 1 171

NET CASH USED IN INVESTING ACTIVITIES (557) (259)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid to owners of the Company (132)

-Dividends paid to non-controlling interests in consolidated subsidiaries (9) (13)

Issuance of share capital -

-Sale (purchase) of treasury stock (71) 23

Issuance of long-term debt 12.5 701 20

Interest paid (69) (80)

Interest received 5 6

Bond exchange premium 12.5 (91)

-Repayments of long-term debt 12.5 (584) (323)

Acquisitions of equity interests without gain of control -

-NET CASH USED IN FINANCING ACTIVITIES (250) (367)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 13 (4)

NET CHANGE IN CASH AND CASH EQUIVALENTS (162) (10)

NET CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,247 1,207

NET CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,085 1,197

o/w:

y

y

Cash and cash equivalents 1,408 1,440

y

y

Short-term debt (323) (243)

(1) The consolidated statement of cash flows for first-half 2013 differs from that presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since it has been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis (see Notes 1.1.1 and 1.4).

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Consolidated statement of changes in stockholders’ equity

4

4.5 Consolidated statement of changes

in stockholders’ equity

Number of

shares (in millions of euros)

Share capital Additional paid-in capital Translation adjustment Retained earnings

Total stockholders' equity including

non-controlling interests restated(1)

Stockholders'

equity Non-controlling interests Total

76,103,667 STOCKHOLDERS' EQUITY AT JANUARY 1, 2013 238 1,434 183 197 2,052 138 2,190 Dividends paid - - - (115) (115) (13) (128) 888,611 Treasury stock - - - 29 29 - 29 Capital increase - - - -Share-based payment - - - 5 5 - 5 Other movements - - - 1 1

TRANSACTIONS WITH OWNERS - - - (81) (81) (12) (93)

Net income for the period - - - 190 190 14 204

Other comprehensive

income (loss), net of tax - - (87) 59 (28) (6) (34)

TOTAL COMPREHENSIVE INCOME (LOSS) - - (87) 249 162 8 170 76,992,278 STOCKHOLDERS’ EQUITY AT JUNE 30, 2013 238 1,434 96 365 2,133 134 2,267 Dividends paid - - - (1) (1) 650,540 Treasury stock - - - 25 25 - 25 Capital increase - - - -Share-based payment - - - 4 4 - 4 Other movements - - -

-TRANSACTIONS WITH OWNERS - - - 29 29 (1) 28

Net income for the period - - - 249 249 15 264

Other comprehensive

income (loss), net of tax - - (78) 48 (30) (1) (31)

TOTAL COMPREHENSIVE INCOME (LOSS) - - (78) 297 219 14 233 77,642,818 STOCKHOLDERS’ EQUITY AT DECEMBER 31, 2013 238 1,434 18 691 2,381 147 2,528 Dividends paid - - - (132) (132) (9) (141) 304,017 Treasury stock(2) _{- - - (70) (70) - (70)} Capital increase - - - -Share-based payment - - - 6 6 - 6 Other movements - - (1) (1) 11 10

TRANSACTIONS WITH OWNERS - - - (197) (197) 2 (195)

Net income for the period - - - 262 262 14 276

Other comprehensive income

(loss), net of tax - - 36 (69) (33) 5 (28)

TOTAL COMPREHENSIVE

INCOME (LOSS) - - 36 193 229 19 248

77,946,835

STOCKHOLDERS’ EQUITY AT

JUNE 30, 2014 238 1,434 54 687 2,413 168 2,581

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Notes to the condensed interim consolidated financial statements

4

4.6 Notes to the condensed interim

consolidated financial statements

The condensed interim consolidated financial statements of the Valeo Group for the six months ended June 30, 2014 include:

y

y

the accounts of Valeo;

y

y

the accounts of its subsidiaries;

y

y

Valeo's share in the net assets and earnings of equity-accounted companies (joint ventures and associates). Valeo is an independent group fully focused on the design, production and sale of components, integrated systems and modules for the automotive sector. As a technology

company, Valeo proposes innovative products and systems that contribute to the reduction of CO₂ emissions and to the development of intuitive driving. Valeo is one of the world's leading automotive suppliers and is a partner to all automakers across the globe.

Valeo is a French legal entity listed on the Paris Stock Exchange, whose head office is at 43, rue Bayen, 75017 Paris. Valeo’s condensed interim consolidated financial statements were authorized for issue by the Board of Directors on July 24, 2014.

Note 1

Accounting policies

1.1

Accounting standards applied

The condensed interim consolidated financial statements for the six months ended June 30, 2014 are prepared in accordance with IAS 34 – “Interim Financial Reporting” and with the International Financial Reporting Standards (IFRS) and interpretations published by the International Accounting Standards Board (IASB), as adopted by the European Union and effective at January 1, 2014.

Pursuant to IAS 34, the Notes to these condensed interim financial statements are designed to:

y

y

update the accounting and financial information contained in the last published consolidated financial statements at December 31, 2013;

y

y

include new accounting and financial information about significant events and transactions that occurred during the period.

These notes therefore discuss significant events and transactions having occurred in the first six months of 2014 and should be read in conjunction with the information set out in the consolidated financial statements for the year ended December 31, 2013 included in the Group's 2013 Registration Document(1)_.

The accounting principles used to prepare the condensed interim consolidated financial statements for the six months ended June 30, 2014 are the same as those used to prepare the 2013 annual consolidated financial statements, except as regards:

y

y

changes in accounting policies relating primarily to the new and amended standards and interpretations described below, effective as of January 1, 2014. The impacts of these changes are detailed in Note 1.4;

y

y

the specific measurements described in Note 1.3.

1.1.1

Standards, amendments and

interpretations adopted by the European

Union and obligatorily applicable

for reporting periods beginning

on or after January 1, 2014

1.1.1.1 Standards and amendments

on consolidation

The IASB published the following standards and amendments on consolidation:

y

y

IFRS 10 – “Consolidated Financial Statements”;

y

y

IFRS 11 – “Joint Arrangements”;

y

y

IFRS 12 – “Disclosure of Interests in Other Entities”;

y

y

IAS 27 (revised) – "Separate Financial Statements";

y

y

IAS 28 (revised) – “Investments in Associates and Joint Ventures”;

y

y

Amendments to IFRS 10, IFRS 11 and IFRS 12 – “Transition Guidance”;

y

y

Amendments to IFRS 10, IFRS 12 and IAS 27 – “Investment Entities”.

These standards and amendments on consolidation adopted by the European Union in December 2012 lead to certain adjustments and restatements in the Group's consolidated financial statements. These are discussed in more detail in Note 1.4.1.

1.1.1.2 Other standards, amendments

and interpretations

The IASB also published the following amendments:

y

y

Amendments to IAS 32 – "Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities";

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Notes to the condensed interim consolidated financial statements

4

y

y

Amendment to IAS 36 – “Recoverable Amount Disclosures for Non-Financial Assets”;

y

y

Amendments to IAS 39 – "Novation of Derivatives and Continuation of Hedge Accounting".

These amendments do not have a material impact on the Group’s consolidated financial statements.

1.1.2

Standards, amendments and

interpretations adopted by the European

Union and obligatorily applicable

for reporting periods beginning

after January 1, 2014 and not early

adopted by the Group

On June 14, 2014, the European Union adopted IFRIC 21 – "Levies". This interpretation is obligatory applicable for reporting periods beginning on or after June 17, 2014, i.e., as of January 1, 2015 for Valeo, whose reporting period is consistent with a calendar year.

IFRIC 21 provides guidance on when to recognize a liability for a levy (other than income tax), and specifies that the obligating event giving rise to this liability is the activity that triggers the payment of the levy, as identified by the legislation. This interpretation may result in adjustments to the Group's consolidated financial statements as it could change the date on which a liability for a levy is recognized, based on whether or not a present obligation exists at the reporting date.

1.1.3

Standards, amendments and

interpretations published by the IASB but

not yet adopted by the European Union

The following standards, amendments and interpretations have been published by the IASB but not yet adopted by the European Union:

y

y

IFRS 9 – “Financial Instruments”, along with amendments to IFRS 9;

y

y

IFRS 15 – "Revenue from Contracts with Customers";

y

y

Amendments to IAS 19 – "Defined Benefit Plans: Employee Contributions";

y

y

Amendments to IAS 16 and IAS 38 – "Clarification of Acceptable Methods of Depreciation and Amortization";

y

y

Amendments to IFRS 11 – "Accounting for Acquisitions of Interests in Joint Operations";

y

y

Annual improvements to IFRS for 2010-2012 and 2011-2013. The Group is awaiting the definitive version of IFRS 9 which could lead to adjustments in its consolidated financial statements. Only two phases out of the three-phase standard have been completed (published in November 2009 and November 2013, respectively) and the impacts of IFRS 9 cannot be analyzed independently of the as-yet unpublished section on impairment of financial assets.

IFRS 15 was published on May 28, 2014 and should be applicable for reporting periods beginning on or after

IFRIC and SIC interpretations on revenue recognition, and introduces a new model for accounting for revenue from contracts with customers. A preliminary analysis of the main impacts of this new standard on the Group's consolidated financial statements will be conducted to assess any adjustments and restatements that may be necessary. The other new publications are not expected to have a material impact on the Group's consolidated financial statements.

1.2

Basis of preparation

The condensed interim consolidated financial statements are presented in euros and are rounded to the closest million. Preparation of the financial statements requires Valeo to make estimates and assumptions which could have an impact on the reported amounts of assets, liabilities, income and expenses. These estimates and assumptions concern both risks specific to the automotive supply business such as those relating to quality and safety, as well as more general risks to which the Group is exposed on account of its industrial operations across the globe.

The Group exercises its judgment based on past experience and other factors considered to be decisive given the circumstances. The estimates and assumptions used are revised on an ongoing basis. In view of the uncertainties inherent in any assessment, the final amounts reported in Valeo’s future financial statements may differ from the amounts resulting from these estimates.

Key estimates, assumptions and judgments adopted by the Group to prepare its financial statements for the six months ended June 30, 2014 chiefly concern:

y

y

the classification of joint arrangements to which the Group is party as joint ventures (see Note 1.4.1.2);

y

y

the measurement of the recoverable amount of property, plant and equipment and intangible assets (see Note 6.2);

y

y

estimates of provisions, particularly for pensions and other employee benefits and for the risks linked to warranties (see Notes 5.1 and 7);

y

y

the measurement of the recoverable amount of deferred tax assets (see Note 10).

1.3

Specific measurements

used to prepare the interim

consolidated financial

statements

1.3.1

Estimated income tax expense

In accordance with IAS 34 on interim financial reporting, the Group’s income tax expense was calculated based on an estimated projected tax rate for 2014. This estimated rate was calculated on the basis of the tax rates likely to apply

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Notes to the condensed interim consolidated financial statements

4

1.3.2 Post-employment and

other long-term benefits

The provision for pensions and other employee benefits is recognized based on projections made by actuaries using data from the end of the previous reporting period. The discount rates for the countries representing the Group’s most significant obligations (US, eurozone, UK, Japan) are reviewed at June  30. Projections are adjusted in order to reflect any significant changes in assumptions over the period or one-off impacts linked to discount rates, applicable legislation or the population concerned. The assumptions used and the impacts of revising these assumptions are discussed in Note 5.1.

At June 30, the value of the main plan assets is also reviewed and adjusted wherever the market value of the assets differs significantly from their carrying amount.

1.4

Changes in accounting policies

and restatement of prior-year

financial information

1.4.1

First-time application of new

consolidation standards

1.4.1.1 IFRS 10 – “Consolidated Financial

Statements”

IFRS 10 – "Consolidated Financial Statements" replaces IAS 27 – "Consolidated and Separate Financial Statements" in its provisions applicable to consolidated financial statements, along with SIC 12 – "Consolidation – Special Purpose Entities". IFRS 10 provides a revised definition of control based on a new single framework.

The nature of control over entities owned by Valeo either directly or indirectly was reviewed in light of the criteria defined by IFRS 10. This review did not identify any significant discrepancies with the reviews carried out prior to the first-time application of IFRS 10 of companies controlled (or not controlled) by Valeo.

Accordingly, the first-time application of IFRS 10 at January  1,  2014 does not impact the Group's consolidated financial statements.

1.4.1.2 IFRS 11 – “Joint Arrangements”

IFRS 11 – "Joint Arrangements" replaces IAS 31 – "Interests in Joint Ventures" and SIC 13 – "Jointly Controlled Entities – Non-Monetary Contributions by Venturers". IFRS 11 sets out the principles of accounting for arrangements of which two or more parties have joint control.

Depending on the rights and obligations of each party, joint arrangements can be classified as:

y

y

a joint operation, if the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement: in this case, the Group recognizes its share of the assets, liabilities, revenue and expenses of the joint

y

y

a joint venture, if the rights and obligations represent rights to the net assets of the arrangement: in this case, the joint venture is accounted for using the equity method (proportionate consolidation is no longer permitted). The Group previously accounted for its joint ventures using the proportionate consolidation method. Following an analysis of the underlying contracts, the Group classified all of its joint arrangements as joint ventures and not joint operations. Accordingly, these entities are now accounted for using the equity method in accordance with IFRS 11. The retrospective application of IFRS 11 requires the 2013 annual and interim consolidated financial statements to be restated (see Note 1.4.3 below).

Upon the first-time application of IFRS 11, the portion of goodwill allocated to cash-generating units (CGUs) comprising joint ventures previously accounted for using proportionate consolidation was reallocated and reclassified within investments in equity-accounted companies. Goodwill was reallocated based on the carrying amounts of the joint ventures and groups of CGUs concerned at January 1, 2013. The impacts of this change on goodwill and on investments in equity-accounted companies are presented in Notes 6.1 and 9 below.

After taking into account this goodwill reallocation, Valeo analyzed whether there were any indications that these new CGUs excluding the joint ventures were impaired. No additional impairment tests were required as a result, besides those performed for the 2013 reporting period and at January 1, 2013.

The changes resulting from the retrospective application of IFRS 11 did not alter the findings of the impairment tests on the goodwill allocated to each Business Group or on the portion of goodwill allocated to investments in equity-accounted companies.

1.4.1.3 IFRS 12 – “Disclosure of Interests

in Other Entities”

IFRS 12 – "Disclosure of Interests in Other Entities" sets out all of the disclosures required about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated 'structured' entities, regardless of the degree of control or influence exercised over these entities. IFRS 12 enhances the information provided in the Notes to consolidated financial statements. Most of these new disclosures will be included in the consolidated financial statements for the year ended December 31, 2014 to be published in early 2015.

1.4.2 Change in the presentation of the

consolidated statement of income

In accordance with IAS 1, Valeo should retain the presentation and classification of items in the consolidated financial statements from one period to the next, unless it is apparent that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in IAS 8.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Notes to the condensed interim consolidated financial statements

4

At the same time as the entry into force of IFRS 11, Valeo changed the presentation of its statement of income in order to reflect the nature of the activities carried out by the Group's equity-accounted companies.

All companies consolidated using the equity method, either joint ventures discussed in the Note above or associates (which were already previously accounted for using the equity method), contribute to the Group’s operations and belong to one of its four operating segments. As a result, the Group considered that it would be more appropriate to recognize the share in net earnings of equity-accounted companies within operating income. This represents a voluntary change in accounting policy within the meaning of IAS 8, which allows such changes if they lead to more relevant and reliable information.

Since the operating margin is one of the main indicators used to monitor the Group's performance, the share in net earnings of equity-accounted companies is now included in a new statement of income account, "Operating margin including share in net earnings of equity-accounted companies".

This new line corresponds to the "Operating margin" heading (determined as operating income before other income and expenses) shown in the statement of income published in February 2014, plus the share in net earnings of all equity-accounted companies.

This latter caption includes:

y

y

the share in net earnings of associates (caption presented on a separate line in the statement of income published in February 2014); and

y

y

the share in net earnings of joint ventures now accounted for using the equity method.

The resulting impact on the consolidated statement of income for the six months ended June 30, 2013 and the year ended December 31, 2013 is presented in Note 1.4.3 below.

1.4.3 Impact of changes on the 2013

consolidated financial statements

The following tables show the impacts of the retrospective application of IFRS 11 (see Note 1.4.1) on the entire consolidated financial statements at June 30 and December 31, 2013, and of the changes in presentation in the consolidated statement of income for the six months ended June 30, 2013 and the year ended December 31, 2013 (see Note 1.4.2) in relation to the financial statements presented in the accounts published in July 2013 and February 2014.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Notes to the condensed interim consolidated financial statements

4

1.4.3.1 Consolidated statement of income

(in millions of euros)

First-half 2013 published IAS 8 – Change in presentation of statement of income First-time application of IFRS 11 First-half 2013 restated Full-year 2013 published IAS 8 – Change in presentation of statement of income First-time application of IFRS 11 Full-year 2013 restated CONTINUING OPERATIONS SALES 6,166 - (222) 5,944 12,110 - (448) 11,662 Cost of sales (5,129) - 196 (4,933) (10,037) - 384 (9,653) GROSS MARGIN 1,037 - (26) 1,011 2,073 - (64) 2,009 % of sales 16.8% 0.2 pts 17.0% 17.1% 0.1 pts 17.2%

Research and Development

expenditure, net (332) - 14 (318) (643) - 29 (614)

Selling expenses (99) - 2 (97) (196) - 3 (193)

Administrative expenses (222) - 1 (221) (439) - 3 (436)

OPERATING MARGIN 384 - (9) 375 795 - (29) 766

% of sales 6.2% 0.1 pts 6.3% 6.6% 6.6%

Share in net earnings of

equity-accounted companies 4 4 8 7 19 26

OPERATING MARGIN including share in net earnings of

equity-accounted companies 383 792

% of sales 6.4% 6.8%

Other income and expenses (41) - - (41) (67) - - (67)

OPERATING INCOME including share in net earnings of

equity-accounted companies 343 4 (5) 342 728 7 (10) 725

Interest expense (56) - 1 (55) (108) - 1 (107)

Interest income 6 - - 6 8 - 1 9

Other financial income and

expenses (22) - 1 (21) (47) - 1 (46)

Share in net earnings of

equity-accounted companies 4 (4) - 7 (7)

-INCOME BEFORE -INCOME TAXES 275 - (3) 272 588 - (7) 581

Income taxes (71) - 3 (68) (119) - 6 (113)

INCOME FROM CONTINUING

OPERATIONS 204 - - 204 469 - (1) 468

DISCONTINUED OPERATIONS

Income (loss) from discontinued operations,

net of tax - - -

-NET INCOME FOR THE YEAR 204 - - 204 469 - (1) 468

Attributable to:

y

y

Owners of the Company 190 - - 190 439 - - 439

y