French auto parts group Valeo reported a decline in 2006 operating profit today due to a rise in raw material costs and output cuts at many automakers.
Europe's largest listed car parts group said its operating income fell to $442 million (341 million euros) from 374 million euros a year earlier. But Valeo said its operating income was $351.2 million (271 million euros), after $90.1 million (70 million euros) in what it called "other expenses."
"The expected stabilization in automotive production in the group's key markets is not expected to occur before the second half of 2007," Valeo said in a statement.
"In this context, and assuming a stabilization of raw materials prices, Valeo aims to improve its operational profitability by stepping up efforts to increase competitiveness," it added, without giving details.
Valeo said it would "re-engineer its principle functions" to optimize resources and processes.
It said its gross margin fell by 1.3 percent to $1.99 billion (1.54 billion euros), or 15.4 percent of sales, with a negative impact of 0.7 point from rising raw materials prices.
Net income rose to $208.7 million (161 million euros) from 142 million euros a year earlier, helped by a $46.7 million (36 million euros) gain on the sale of its electric motors and actuators business and a $49.2 million (38 million euros) gain from the sale of the Logitec logistics business and an investment in Parrot.
Sales were $13.07 billion (10.09 billion euros), up 2.6 percent, and net debt was down by $145.2 million (112 million euros) to $1.25 billion (968 million euros).
The statement made no mention about any merger talks amid rumors that Valeo could be eyeing parts of U.S. rivals Visteon Corp. and Delphi Corp.
CEO Thierry Morin has indicated in the past that Valeo could absorb an acquisition with an enterprise value of $2.59 billion (2 billion euros).
Hedge fund Pardus, controlled by Karim Samii, has 5 percent of Valeo and also is a holder of Visteon stock.
But another investor, Guy Wyser-Pratte, heads a grouping owning 3 percent of Valeo and wants the supplier to stay away from U.S. acquisitions and focus on boosting profits.