contents 2 _ Selected financial data 4 _ Stock market information 5 _ Board of Directors, Executive Committee and Auditors

Transcription

1 2005 Interim report

2 contents 2005 Interim report 2 _ Selected financial data 4 _ Stock market information 5 _ Board of Directors, Executive Committee and Auditors 6 _ Management report and outlook 9 _ Consolidated financial statements Faurecia 2, rue Hennape Nanterre Cedex France Tel.: +33 (0) Fax: +33 (0)

3 2 SELECTED FINANCIAL DATA_ SELECTED FINANCIAL DATA IFRS (in millions) First half 2005 First half % % % Sales Vehicle Interior modules 4, , , Other modules 1, , , Total 5, , , Operating margin before goodwill (1) after goodwill (1) Other net income and (expenses) (62.4) (1.1) (27.9) (0.5) (11.8) (0.1) Net income Group share EBITDA (2) Cash flow Capital expenditure Capitalized development costs Gross R&D expenditure Employees (3) 62,701 63,159 62,507 06/30/ /31/2004 Shareholders equity 1, ,640.0 Net financial debt 1, ,543.3 (1) Contractual customers relationship. (2) Operating margin before amortization of contractual customer relationship + depreciation, amortization and depreciation in value of property, plant and equipment and intangible assets. (3) Including temporary staff. FAURECIA 2005 INTERIM REPORT

4 _ SELECTED FINANCIAL DATA 3 FIRST HALF OF 2005 SALES N (in millions) First half 2005 First half 2004 % change 2005/ Automotive Seating 2, , % 4,784.7 at constant exchange rates 2.4 % Vehicle Interior 1, ,807.6 (3.6)% 3,500.9 at constant exchange rates and on a comparable basis (1.7)% Vehicle Interior modules 4, , % 8,285.6 at constant exchange rates and on a comparable basis 0.7% Exhaust Systems % 1,714.9 excluding monoliths sales, % 1,020.0 at constant exchange rates and on a comparable basis 15.2 % Front-end modules % at constant exchange rates 7.3 % Other modules 1, , % 2,433.9 excluding monoliths % 1,739.0 at constant exchange rates and on a comparable basis 10.6% Total 5, , % 10,719.5 excluding monoliths 5, , % 10,024.6 at constant exchange rate and on a comparable basis 2.5 % 2005 sales breakdown by customer 2005 sales breakdown by region DaimlerChrysler 7.2% GM Group 7.2% BMW 5.3% Others 4.2% Toyota 1.8% PSA Peugeot Citroën 27.6% France 33.2% Other countries 1.3% South America 1.8% Asia 3.2% North America 10.0% Other European countries 9.2% UK 3.1% Ford Group 9.7% Renault-Nissan 14.9% VW Group 22.1% Germany 25.4% Spain and Portugal 12.8% FAURECIA 2005 INTERIM REPORT

5 4 STOCK MARKET INFORMATION_ STOCK MARKET INFORMATION Faurecia share price evolution % change Compared to Compared to to 06/30/ /31/ /30/ D Faurecia 0.5% 2.8% SBF 120 adjusted 11.1% 14.3% DS Autoparts Europe adjusted (1.7)% 7.3% J F M A M J J A S O N D J F M A M J Stock market data 06/30/ /31/2004 Market capitalization at the end of the period (in M ) 1, ,399.4 Share price (in ) highest lowest At period end (in ) Shareholders equity per share (in ) Per share data 06/30/ /30/ /31/2004 Earnings per share after dilution (in ) Cash flow per share (in ) Stock market information Fiscal year: January 1 to December 31 ISIN code: FR Nominal value : 7 Traded on the Euronext Paris SA Eurolist Stock eligible for deferred settlement (SRD) Ownership structure 06/30/ /31/2004 Number of shares at period end (in thousands) 24,230 24,212 PSA Peugeot Citroën 71.34% (83.88) 71.39% FCP Faurecia shareholders 0.36% (0.21) 0.36% Directly held 1.41% 1.57% Publicly held 26.89% (15.90) 26.68% (voting rights in parentheses) Financial information available at FAURECIA 2005 INTERIM REPORT

6 _ BOARD OF DIRECTORS, EXECUTIVE COMMITTEE AND AUDITORS 5 BOARD OF DIRECTORS, EXECUTIVE COMMITTEE AND AUDITORS Board of Directors as of June 30, 2005 Pierre Lévi Chairman and Chief Executive Officer Directors Louis Defline Yann Delabrière Daniel Dewavrin Patrick Duverger Frank Esser Jean-Martin Folz Jean-Louis Gérondeau Jean-Claude Hanus Gérard Hauser Thierry Peugeot Executive Committee as of June 30, 2005 Pierre Lévi Chairman and Chief Executive Officer Patrick Bikard Group Industrial Gérard Breining President Japan Gérard Chochoy Automotive Seating Business Group Arnaud de David-Beauregard Group Development Jean-Michel Elter Group Customer Development Jean-Marc Hannequin Exhaust Systems Business Group Laurent Hebenstreit Interior Systems Business Group Frank Imbert Chief Financial Officer Thierry Lemâne Group Communications Jacques Le Morvan Group Purchasing Bruno Montmerle Group Strategy James C. Orchard President North America Christophe Schmitt Components Business Group Jean-Pierre Sounillac Group Human Resources Guy Talbourdet Modules and Systems Business Group Auditors Statutory Auditors PricewaterhouseCoopers Audit represented by Guy Sitbon 32, rue Guersant Paris France Ernst & Young Audit represented by Laurent Miannay 11, allée de l Arche Courbevoie France Alternate Auditors Catherine Sabouret 32, rue Guersant Paris France François Carrega Tour Ernst & Young 11, allée de l Arche Paris-La Défense Cedex France FAURECIA 2005 INTERIM REPORT

7 6 MANAGEMENT REPORT AND OUTLOOK_ MANAGEMENT REPORT AND OUTLOOK The economic backdrop to the first half of 2005 was particularly difficult, marked by a hike in commodities prices, including steel and plastics. In addition, European automotive production dipped by around 1% over the six months under review, contracting mainly during the first quarter. Despite these tough operating conditions, Faurecia s sales continued to advance, powered by business performance outside Europe, and the Group reported sustained growth for the six months ended June 30, At the same time, it implemented several action points over the period, in order to pave the way for stengthening its growth trajectory and bolstering its competitive edge. In particular, it: implemented a strong program acquisition plan; stepped up its Research & Development operations, which represented 5.9% of first-half sales; strengthened its resources in three of its R&D centers in France the international seating mechanism center, in Flers; the international center for complete seat units, in Brières; and a center specialized in foam-fill, in Magny-en-Vernois; opened new manufacturing sites. In total, nine sites were set up in 2005, of which three began production in the first half of the year. The first of these is the Leipzig site in Germany, for BMW, where three of the BMW 3 Series modules are manufactured (seating, cockpits and front ends). The second is Cleveland in the United States, which is dedicated to manufacturing seating frames for Chrysler. And the third is in Hermosillo in Mexico, which makes exhaust systems for Ford; and consequently increased capital expenditure levels to 3.8% of sales in first-half The first six months of 2005 also saw an acceleration of costcutting programs at the majority of Faurecia s sites, including the announcement of the decision to close the foam-fill plant in Beaugency in France. Business review Faurecia s consolidated sales totaled 5,612.7 million in first-half 2005, up 1.7% on the corresponding prior-year period. Excluding catalytic converters, like-for-like sales growth was 2.5%. Currency effects had a positive 0.3% impact on sales, while changes in Group structure had a negative effect of 1.9%. Faurecia s sales growth was particularly strong outside Europe, with North America, South America and Asia registering like-for-like gains of 14%, 23% and 40%, respectively. Sales in North America were boosted by Automotive Seating and Exhaust Systems, Asia s sales were fuelled by Automotive Seating, and South America s sales were powered both by Vehicle Interior modules and Exhaust Systems. Automotive Seating recorded sales of 2,544.3 million for the six months ended June 30, 2005, up 2.8% on first-half Excluding exchange-rate effects, the increase was 2.4%. Seating business was buoyant in Europe, led by several new offerings and a step-up in production of the Citroën C4, Opel Astra, Peugeot 407 and Renault Grand Scénic. North America turned in a very strong showing, driven by increased production of the Honda Odyssey and Pontiac G6, as did China, propelled by the Nissan Teana model. Growth in South America was fuelled by sales to PSA Peugeot Citroën and Renault. Sales for other Vehicle Interior modules came in at 1,743.4 million, a decline of 3.6% on the first six months of 2004, or 1.7% on a like-for-like basis. Performance was positively impacted by exchange rates (0.3%) but adversely affected by changes in Group structure (2.2%), due to the divestment of the Steering Systems business. Overall, this business performed in line with the market. It did, however, reap the benefits of European launches of the Audi A6, Citroën C4, and Ford Focus, as well as of increased production of the Peugeot 407. In South America, performance was mostly driven by sales to Ford. Overall, Vehicle Interior modules reported sales of 4,287.7 million in first-half 2005 (compared with 4,283.3 million in the corresponding prior-year period), representing a 0.1% increase. Like-for-like growth was 0.7%. Sales for Exhaust Systems climbed 7.0% (2.7% excluding catalytic converters), to million. Excluding catalytic converters, period-on-period sales growth for this business came to 15.2% on a like-for-like basis. Exchange-rate effects had a 0.3% negative impact and structural changes negatively impacted sales by 12.2%, due to the divestment of the Engine Reconditioning business. Exhaust Systems achieved solid gains in Europe, particularly thanks to the success of the Ford Focus and a step-up in production of the Mercedes A-Class. Growth was also strong outside Europe especially in North America, thanks to the rise in production of the Ford Freestyle and Chevrolet Cobalt. Front end sales advanced 7.3% to million, led by higher business volumes with Audi and BMW. The Other Modules segment recorded sales of 1,325.0 million, versus 1,237.3 million in first-half This represented growth of 7.1% (10.6% on a like-for-like basis and excluding catalytic converters). FAURECIA 2005 INTERIM REPORT

8 _ MANAGEMENT REPORT AND OUTLOOK 7 Results Operating margin for the first six months of 2005 amounted to million, a 62.6 million contraction on first-half 2004, and represented 2.9% of consolidated sales, down 1.1 points on the corresponding prior-year figure. Purchases of commodities (steel and plastics) accounted for almost 12% of Faurecia s sales, and the gross impact of the rise in commodities prices was around 150 million for the period. Despite ever-increasing price pressure, negotiations undertaken by Faurecia with its customers and suppliers enabled the Group to reduce the impact on operating margin to approximately 70 million. In parallel, Faurecia continued to enhance its manufacturing operations and performance, especially as regards quality, safety and productivity. Due to the restatement of goodwill carried out in connection with the transition to International Financial Reporting Standards, amortization of the contractual customer relationship was recorded for the last time in first-half 2004, in an amount of 59.7 million. Taking this into account, published operating margin for first-half 2004 came to million, representing 3.0% of sales, which was on a par with the operating margin recorded for first-half 2005 ( million, or 2.9% of sales). EBITDA (1) (Earnings Before Interest, Taxes, Depreciation and Amortization) stood at million, representing 7.1% of sales, versus million (8.7% of sales) in first-half The decrease mainly stemmed from the lower operating margin and, to a lesser extent, a reduction in the amortization of capitalized development costs. Under IFRS, the calculation of EBITDA has changed and now includes the amortization of capitalized development costs, which is recorded over the life of the Group s programs. Operating margin for Vehicle Interior modules after amortization of the customer contractual relationship edged down to 2.6% from 3.9% in first-half 2004, as a result of the rise in commodities prices. Operating margin for Other Modules contracted to 4.2% from 4.9%. This segment s sales growth tempered the impact of the increase in commodities prices, which was the same as for the Group s other business lines. Gross Research & Development costs expanded 11.1% to million from million. This increase was attributable to the routine cycle of renewing programs, and the acquisition of new platforms, notably in North America. Net R&D costs declined, however, to million from million, reflecting a higher level of research cost billings. Gross R&D costs amounted to 5.9% of sales, compared with 5.4% for first-half Net R&D costs dipped to 2.3% of sales, from 2.5%. Selling and administrative expenses over first-half 2005 came to million, or 3.0% of sales, representing a 0.1 point increase. This rise reflects changes in non-recurring items, such as provisions for claims and litigation, as well as the set-up of new structures to partner business expansion in North America and Asia. Other operating income and expense represented a net expense of 62.4 million, up 34.5 million on first-half This amount exclusively concerns restructuring provisions, corresponding to cost-reduction plans announced during the period for a large number of the Group s sites. These provisions mainly relate to France, Germany and Spain, and include the planned closure of the Beaugency site in France. Net interest expense was stable, totaling 34.5 million against 34.7 million for the six months ended June 30, Other financial income and expense represented a net expense of 15.4 million. This item primarily includes two captions resulting from IFRS the impact of discounting retirement benefit obligations and the return on plan assets (which was more or less unchanged between 2005 and 2004), and mark-to-market adjustments of currency and interest-rate hedging instruments. The expense recorded in 2005 mainly relates to the decrease in the value of interestrate options set up to cap interest-rate risk on the Group s borrowings which are mostly at floating rate. The recent drop in interest rates led to a decrease in the value of these options. The tax charge was 13.8 million for first-half 2005, representing a 29% tax rate. Equity in net income of companies accounted for by the equity method stood at 5.0 million, compared with a net loss of 0.6 million in first-half Net income before minority interest for the six months ended June 30, 2005 totaled 38.9 million. After deducting minority interest of 4.4 million, net income came to 34.5 million, versus 59.7 million in the corresponding prior-year period. Diluted earnings per share amounted to 1.43, compared with 2.49 in first-half Net debt Net debt as of June 30, 2005 amounted to 1,618.6 million, up 75.3 million on the December 31, 2004 figure. The rise was primarily due to investments in business expansion that the Group has undertaken as part of its growth and competitiveness strategy. (1) Operating margin + depreciation, amortization and impairment in value of property, plant and equipment and intangible assets. FAURECIA 2005 INTERIM REPORT

9 8 MANAGEMENT REPORT AND OUTLOOK_ Cash flow from operations eased back 93.9 million to million compared with the prior year, representing 5.2% of sales. The twin reasons for this decline are the contraction in operating margin and the rise in restructuring costs, partly offset by a decrease in taxes on income. Working capital requirement contracted by 17.4 million, reflecting the combined impact of an increase in the amount of development costs pending billing and an improvement in production taken to inventory and outstanding trade receivables and payables. Capital expenditure climbed 22 million to million for the period ended June 30, 2005, representing 3.8% of sales (3.5% for first-half 2004) This expenditure was undertaken in connection with the sustained expansion strategy rolled out in the first half of the year. Total shareholders equity stood at 1,670.4 million as of June 30, 2005, versus 1,640.0 million as of December 31, Net debt totaled 1,618.6 million and the gearing ratio came to Parent company results Faurecia SA s sales for first-half 2005 amounted to 38.9 million, compared with 33 million in first-half This figure essentially includes the billing of services provided to Group companies. The Company reported a net operating loss of 4.4 million, and net financial income of 20.1 million, including 36.6 million in dividends received from subsidiaries. Tax gains totaled 11.4 million, arising from the French subsidiaries included in the tax Group, bringing Faurecia SA s net income to 27.7 million for the six months ended June 30, Outlook Faurecia believes that European automotive production should decline in the second half of The impact of higher raw materials costs in the second half of 2005 should be of the same order as in the first half. The Group will continue to pursue its development initiatives and improvements to its industrial performance, in the second part of the year. Faurecia estimates the second half of the year will be a continuity of the first. Faurecia is therefore maintaining its objective to continually improve its operating results, once higher raw materials prices have been absorbed, on a progressive half-year basis. FAURECIA 2005 INTERIM REPORT

10 9 IFRS CONSOLIDATED INCOME STATEMENTS (in millions) Notes First-half 2005 First-half 2004 Full-year 2004 Sales 4 5, , ,719.5 Operating expenses 5 (5,452.7) (5,298.0) (10,316.6) Operating margin before amortization of contractual customer relationship Amortization of contractual customer relationship (59.7) (119.4) Operating margin after amortization of contractual customer relationship Other operating income and (expense), net 6 (62.4) (27.9) (11.8) Interest expense, net 7 (34.5) (34.7) (75.9) Other financial income and expense 7 (15.4) (5.4) (14.0) Income before tax of fully consolidated companies Corporate income tax 8 (13.8) (28.3) (46.9) Net income of fully consolidated companies Equity in net income of companies accounted for by the equity method 5.0 (0.6) 7.3 Consolidated net income Net income attributable to equity holders of the parent Net income attributable to Minority interest Primary earnings per share (in ) Diluted earnings per share (in )

11 10 IFRS CONSOLIDATED BALANCE SHEETS ASSETS (in millions) Notes As of June 30, 2005 As of Dec. 31, 2004 Goodwill 10 1, ,546.0 Intangible assets Property, plant and equipment 12 1, ,534.4 Investments in companies accounted for by the equity method Other equity interests Other non-current financial assets Other non-current assets Deferred tax assets Total non-current assets 3, ,825.7 Inventories, net Trade accounts receivable 2, ,762.5 Other operating receivables Other receivables and prepaid expenses Currency hedging derivatives operating activities Other currency and interest rate derivatives Total current assets 2, ,541.3 Cash and cash equivalents and marketable securities Total assets 7, ,113.6

12 11 LIABILITIES AND SHAREHOLDERS EQUITY ( in millions) Notes As of June 30, 2005 As of Dec Shareholders equity Capital stock Additional paid-in capital Treasury stock (13.7) (14.1) Retained earnings Translation adjustment Net income Total shareholders equity 14 1, ,640.0 Minority interest Total equity 1, ,700.9 Provisions for pensions and other employee benefits Other provisions Long-term debt Other non-current liabilities Deferred tax liabilities Total non-current liabilities 1, ,069.2 Current portion of long-term debt Prepayments from customers Trade payables 2, ,008.2 Other operating payables Other payables and deferred income Currency and interest rate derivatives Short-term debt 16 1, ,701.8 Total current liabilities 4, ,343.5 Total liabilities and shareholders equity 7, ,113.6

13 12 IFRS CONSOLIDATED CASH FLOW STATEMENTS (in millions) First-half First-half Full-year I- Operating activities CONSOLIDATED NET INCOME FROM CONTINUING OPERATIONS Depreciation and amortization Deferred tax (benefits)/charges 0.8 (10.2) 3.2 Increase/(decrease) in provisions and other long-term liabilities (4.8) Equity in net income of companies accounted for by the equity method, net of dividends received (0.9) 6.3 (1.6) Capital (gains)/losses on disposals of assets 1.5 (0.8) (47.6) Other (0.7) (4.3) (1.3) Cash flow from operations Change in inventories (30.9) (6.2) 19.3 Change in trade accounts receivable (319.0) (347.1) 66.3 Change in trade payables Change in other operating receivables and payables Change in other receivables and payables 12.9 (33.0) (69.2) (Increase)/decrease in working capital requirement Net cash provided/(used by) operating activities II- Investing activities Additions to property, plant and equipment (214.4) (192.4) (403.7) Capitalized development costs (119.9) (109.1) (209.0) Acquisitions of investments (3.4) (24.3) (29.0) Divestments of property, plant and equipment Proceeds from the disposal of investments Change in investment-related receivables and payables 24.8 (12.0) (13.7) Other movements (6.8) (10.4) (11.7) Net cash used by investing activities (315.9) (339.3) (541.6) Net cash provided by operating and investing activities (I)+(II) (5.8) III- Financing activities Issuance of shares by Faurecia and fully-consolidated companies Dividends paid by the parent company (26.3) 0.0 (21.7) Dividends paid to minority interests in consolidated subsidiaries (8.1) (5.0) (3.5) Issuance of debt securities and increase in borrowings Repayments of borrowings and perpetual notes (285.6) (47.5) (506.5) Net cash used by financing activities (309.1) (48.8) (156.1) IV- Other changes in cash and cash equivalents Impact of exchange rate changes on cash and cash equivalents Net increase/(decrease) in cash and cash equivalents (306.6) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

14 13 STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS EQUITY (in millions) Number of shares Capital stock Additional paid-in capital Treasury stock Retained earnings Translation adjustments Consolidated shareholders equity Minority interest Total equity IFRS balance as of January 1, 2004 before appropriation of net income 24,206, (15.1) , ,583.9 Issue of share capital (1) 2, Addition to legal reserve dividend (21.7) (21.7) (3.5) (25.2) Currency translation adjustments (0.7) 12.2 Changes in scope of consolidation (3.0) (3.0) Net income for the period Income and expense recognized directly in equity (2.4) (2.4) (2.4) Balance as of June 30, 2004 before appropriation of net income 24,209, (15.1) , ,631.5 Issue of share capital (1) 2, Addition to legal reserve 0.0 Transactions relating to treasury shares Currency translation adjustments (7.3) (7.3) (1.0) (8.3) Changes in scope of consolidation (4.5) (4.5) Net income for the period Income and expense recognized directly in equity Balance as of Dec. 31, 2004 before appropriation of net income 24,212, (14.1) , ,700.9 Issue of share capital (1) 18, Addition to legal reserve dividend (26.3) (26.3) (8.7) (35.0) Transactions relating to treasury shares 0.4 Currency translation adjustments Changes in scope of consolidation 0 (3.1) (3.1) Net income for the period Income and expense recognized directly in equity (3.6) (3.2) (3.2) Balance as of June 30, 2005 before appropriation of net income 24,230, (13.7) , ,728.6 (1) Shares issued on exercise of stock options.

15 14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Faurecia Group complies with European Union regulation 1606/2002 of July 19, 2002 applicable to all European Union listed companies relating to the application since January 1, 2005 of the set of international financial reporting standards issued by the lnternational Accounting Standards Board (IASB). This set of standards incorporates the International Accounting Standards (IAS), the International Financial Reporting Standards (IFRS), and the Interpretations of International Accounting Standards issued by the International Financial Reporting Interpretations Committee (IFRIC). Faurecia s interim financial statements have been prepared in accordance with the recommendations of the French securities regulator (Autorité des Marchés Financiers AMF) dated June 27, In this report, consolidated net income for first-half 2005 calculated in accordance with IFRS is presented with comparative information for first-half and full-year 2004, restated in accordance with IFRS. The IFRS balance sheet as of June 30, 2005 is presented with comparative information for December 31, 2004, also restated in accordance with IFRS. In order to enable shareholders and the financial community at large to assess the consequences of the major transition of first-time adoption of IFRS, and in accordance with the recommendations issued by the Committee of European Securities Regulators (CESR) and the Autorité des Marchés Financiers (AMF), this interim report also contains: French GAAP/IFRS reconciliation tables relating to consolidated net income for first-half and full-year 2004, as well as to the balance sheet and equity as of January 1, 2004, June 30, 2004, and December 31, Explanatory notes concerning the changes in accounting standards which have affected Faurecia s financial statements, and the restatements applied. The interim consolidated financial statements for the six months ended June 30, 2005 are presented in accordance with the recommendation issued by the Autorité des Marchés Financiers (AMF) on February 10, The recognition and measurement rules set out under IFRS have been applied and the principles of presentation are in accordance with the recommendation CNC 99-R-01. The presentation adopted may differ in line with changes in the standards in force at the time of preparing the financial statements for the year ending December 31, In addition, the preparation of interim financial statements requires the application of certain specific accounting policies. In particular, the impact of annual plant shutdowns is taken into account for the purposes of allocating fixed costs between periods and income taxes are computed based on the estimated average effective rate of tax for the year. Furthermore, greater use is made of estimates compared with the annual financial statements. 1-1 Consolidation principles Companies which are at least 20%-owned are consolidated when one of the following criteria is met: annual sales over 20 million, total assets over 20 million, or debt over 5 million. Non-consolidated companies are not material, either individually or together.

16 15 Subsidiaries controlled by the Group are fully consolidated. Control is presumed to exist for companies which are over 50%-owned, and may also arise as a result of shareholders' agreements. Companies that are between 20% and 50%-owned are carried at equity when the Group exercises significant influence. The operating currency of foreign subsidiaries is generally their local currency. The balance sheets of these companies are translated into euros at the period-end exchange rate and their income statements are translated at the average monthly exchange rate. The resulting translation adjustments are reported within equity. Certain companies located outside the euro zone which carry out the majority of their transactions in euros may however use euros as their operating currency. For companies located in high-inflation countries, non-monetary assets and liabilities and the corresponding income statement items are translated at historical exchange rates and the resulting translation gain or loss is recognized in the income statement. This method is applied to the Turkish companies SAI Automotive Poliflex, which is fully consolidated, and Teknik Malzeme, which is accounted for by the equity method. 1-2 Goodwill Goodwill represents the difference between the cost of shares in consolidated subsidiaries and the Group s equity in the fair value of the underlying net assets at the time of acquisition. Since January 1, 2004, residual goodwill is no longer amortized and an impairment test is now carried out at least once a year. 1-3 Intangible assets A - Research and development expenditure The Faurecia Group incurs certain development costs in connection with producing and delivering modules for specific customer orders which are either a) not sold to the customer, or b) paid for by the customer on delivery of each part, without the customer providing a guarantee for the full financing of the costs incurred. In accordance with IAS 38, these development costs are capitalized and recorded as an intangible asset where the company concerned can demonstrate: - its intention to complete the project as well as the availability of adequate technical, financial and other resources to complete the development; - how the customer contract will generate probable future economic benefits and the company s ability to measure these reliably; - its ability to measure reliably the expenditure attributable to the contracts concerned (costs to completion). These capitalized costs are amortized in line with the frequency of the quantities of parts delivered to the customer, over a period not to exceed five years except under exceptional circumstances. Research costs, and development costs which do not meet the above criteria, are expensed as incurred. B - Other intangible assets Other intangible assets include development and purchase costs relating to software used within the Group which are amortized on a straight line basis over a period of between one and three years as well as patents and licenses. 1-4 Property, plant and equipment Property, plant and equipment are stated at acquisition cost or production cost in the case of assets produced by the Group for its own use. Maintenance and repair costs are expensed as incurred, except where they serve to increase productivity or to prolong the useful life of an asset.

17 16 Property, plant and equipment are depreciated by the straight-line method over their estimated useful lives, as follows: - Buildings 20 to 30 years - Leasehold improvements, fixtures and fittings 10 to 20 years - Machinery, tooling and furniture 3 to 10 years Certain tooling is produced or purchased for the purpose of manufacturing parts or modules for specific customer orders, which are either a) not sold to the customer, or b) paid for by the customer in line with the delivery of each part, without the customer providing a guarantee for the full financing of the costs incurred. In accordance with IAS 16, this tooling is recognized as property, plant and equipment. It is depreciated in line with the frequency of the quantities of parts delivered to the customer, over a period not to exceed three years due to the rate at which models are replaced. Investment grants are recorded as a deduction from the assets which they were used to finance. Property, plant and equipment acquired under capital leases which substantially transfer all the risks and rewards of ownership of the asset to the lessee are recorded under assets at their purchase price at the inception of the lease and depreciated as noted above. An obligation of the same amount is recorded as a liability. 1-5 Cash generating units and impairment tests Impairment tests are carried out according to IFRS as follows: An initial test is performed at the level of each Cash Generating Unit (CGU) which under IAS 36 is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Within Faurecia, a CGU corresponds to a program. A test is therefore carried out on all of the intangible assets (development costs) and property, plant and equipment attributable to a customer contract to compare their carrying amount with the discounted value of the expected economic benefits to be received under the contract net of the expected expenses. The CGUs thus defined are grouped into sectors for the purpose of allocating the related corporate assets (common buildings, IT equipment, etc.) and goodwill. The carrying amount of the assets of each business sector is then compared with the higher of their value in use and their market value. 1-6 Financial assets excluding derivatives Loans and receivables are stated at amortized cost calculated based on the effective interest rate, and are regularly tested for impairment. Marketable securities mainly comprise short-term money market mutual funds. They are stated in the balance sheet at fair value with changes in fair value recorded under interest income. Cash and cash equivalents correspond to highly liquid investments with maturities of less than three months which are not exposed to significant risks of impairment in value in the event of a rise in interest rates. 1-7 Inventories Raw materials and supplies are stated at cost, determined by the FIFO method (First-In, First-Out). Finished and semi-finished products, as well as work in progress, are stated at production cost, determined by the FIFO method. Production cost includes the cost of raw materials and direct and indirect production costs, excluding overhead not linked to production and interest expense.

18 17 Work in progress includes costs incurred in relation to the manufacturing of specific tooling or development work which is sold to customers, where the customer provides a contractual payment guarantee. These costs are written down and recorded in the income statement over the period in which the corresponding sales are made, as each technical stage is validated by the customer. Provisions are booked for inventories for which the probable realizable value is lower than cost. 1-8 Receivables Receivables are recorded at cost. Provisions are booked on a case-by-case basis where there is a risk of non-recovery, corresponding primarily to trade accounts. 1-9 Foreign currency transactions Transactions in foreign currency are converted at the exchange rate prevailing on the transaction date. At the period end, receivables and payables are reconverted at the periodend exchange rate and the resulting gain or loss is recorded in the income statement under "Operating margin" for trade receivables and payables and under Other financial income and expense for other receivables and payables Derivatives Faurecia uses derivative instruments traded on organized or over-the-counter markets, with first-rate counterparties to hedge currency and interest rate risks. These derivatives are recorded at fair value in the balance sheet. Currency hedges Changes in the intrinsic value of instruments used for hedging future revenues (effective portion of the hedge) are recorded in equity and taken to Operating margin when the hedged revenues are received. Changes in the intrinsic value of instruments used to hedge trade receivables and payables are recorded under Operating margin. Changes in the value of the ineffective portion of hedges (time value of the hedges) and changes in the value of instruments used to hedge other receivables and payables are recorded under Other financial income and expense. Interest rate hedges Changes in the fair value of interest rate hedges for which a hedging relationship cannot be easily demonstrated under IAS 39 are recorded directly in Other financial income and expense Minority interest This item corresponds to minority shareholders interests in the net assets of consolidated subsidiaries. In the case of subsidiaries with a negative net worth, minority interest is deducted from consolidated shareholders equity except where an agreement has been signed requiring minority shareholders to contribute to financing the Company pro rata to their stake in the capital Provisions for post-retirement and other post-employment benefit obligations The Group s liability for post-retirement and other post-employment benefits is determined on an actuarial basis using the projected benefit obligation method. The valuation takes into account the probability of employees staying with the Group up to retirement age and expected future salary levels. Benefit obligations are partially funded by contributions to

19 18 external funds. In cases where the funds are permanently allocated to the benefit plan concerned, their value is deducted from the related liability. Actuarial gains and losses are amortized according to the corridor method over the expected average remaining working lives of the employees participating in the plans. Periodic pension and retirement costs are recognized as operating expenses over the benefit-vesting period, except for the effect of the changes related to discounting retirement benefit obligations, which is recorded under Other financial income and expense in accordance with IAS Stock option plans Stock options are granted to the management executives of Group companies and their over 50%-owned subsidiaries, allowing them to subscribe to new Faurecia shares or to purchase existing shares. Options granted after November 7, 2002 that had not vested as of January 1, 2005 have been measured as of the grant date using the Black & Scholes option pricing model. The fair value of stock options is recognized in payroll costs on a straight-line basis over the vesting period (i.e. the period between the grant date and the vesting date), with a corresponding increase in equity Restructuring and reorganization provisions A provision for restructuring is booked as soon as Group General Management has decided upon a rationalization of the organization structure and announced the program to the employees concerned or their representatives Revenue recognition Sales are recognized when the risks and rewards inherent to the ownership of the modules or parts produced are transferred. This generally corresponds to when the goods are shipped, or in the case of development contracts or the sale of tooling when the technical stages are validated by the customer Operating margin Operating margin is the Faurecia Group s principal performance indicator. It corresponds to net income of fully consolidated companies before taking into account: - other operating income and expense which includes rationalization and early retirement costs, the impact of exceptional events such as the discontinuation of a business, the closure or sale of an industrial site, and disposals of non-operating buildings and shares in subsidiaries; - interest expense, net; - other financial income and expense, which includes the impact of discounting retirement benefit obligations and the return on plan assets, the impact of the ineffective portion of interest rate and currency hedges as well as changes in value of interest rate and currency instruments for which a hedging relationship cannot be demonstrated under IAS taxes Corporate income taxes Deferred taxes are recognized by the liability method for all temporary differences between the book value of assets and liabilities and their tax base. Temporary differences arise mainly from adjustments relating to subsidiaries accounts and tax loss carryforwards. Deferred tax assets resulting from deductible temporary differences and tax loss carryforwards are recognized in the accounts, except in cases where the future recovery of the deferred tax assets seems uncertain.

20 19 Where appropriate, an accrual is booked to cover taxes payable on the distribution of retained earnings of subsidiaries and affiliates which are not considered as having been permanently reinvested Use of estimates The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as reflected in the financial statements. Actual results could differ from these estimates and assumptions Earnings per share Basic earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted earnings per share are calculated by the treasury stock method. 2 - CHANGES IN SCOPE OF CONSOLIDATION 2-1 First-half 2005 In first-half 2005, Faurecia purchased the 50% interest held by a third party in Faurecia Riverside LLC, a US-based company which was already fully consolidated Two companies previously accounted for by the equity method were fully consolidated in first-half 2004 as Faurecia s voting rights exceeded the 50% threshold: Daeki in South Korea and Faurecia Exhaust Systems Changchun in China. In the second half of 2004, Faurecia sold its Steering Column and Mechanics and Environment businesses. It also divested its 50% interest in Armaduras de Asientos Ardasa SA, a Spanish company which was accounted for by the equity method. In addition, Faurecia acquired the remaining shares held by the minority shareholders of SAI Automotive AG, which has been renamed Faurecia Automotive GmbH, as well as a 50% stake in Dynamec, a US-based company which was already fully consolidated. Nine new companies were fully consolidated in 2004, including four in China, one in Romania, two in Slovakia and two in Mexico. 3 - SEASONAL FLUCTUATIONS IN BUSINESS LEVELS Business levels in the automotive industry are traditionally higher in the first half of the year than the second.

21 20 4 INFORMATION BY BUSINESS SEGMENT 4-1.a- Key figures by business segment First-half 2005 Vehicle interior modules Other modules Holding companies Total Net sales (excl. VAT) 4, , ,682.2 Inter-segment eliminations (18.2) (5.0) (46.3) (69.5) Consolidated sales 4, , ,612.7 Operating margin (1.0) Inter-segment eliminations 0.0 Consolidated operating margin (1.0) Segment result (7.5) 82.3 Net interest expense Corporate income tax (13.8) Equity in net income of companies accounted for by the equity method 5.0 Net income 38.9 (34.5) Segment assets Property, plant and equipment, net 1, ,608.9 Other 4, ,097.8 Total segment assets 5, , ,706.7 Investments in companies accounted for by the equity method Other equity interests 1.3 Short- and long-term financial assets Tax assets Total assets 7,350.9 Segment liabilities 2, ,457.3 Borrowings 2,059.3 Tax liabilities Shareholders equity and minority interest 1,728.6 Total liabilities 7,350.9 Capital expenditure Depreciation of property, plant and equipment (134.9) (27.7) (1.0) (163.6)

22 21 First-half 2004 Vehicle interior modules Other modules Holding companies Total Net sales (excl. VAT) 4, , ,596.6 Inter-segment eliminations (25.8) (12.4) (37.8) (76.0) Consolidated sales 4, , ,520.6 Operating margin before amortization of contractual customer relationship (3.2) Operating margin after amortization of contractual customer relationship (3.2) Segment result Net interest expense Corporate income tax Equity in net income of companies accounted for by the equity method Net income 66.0 (34.7) (28.3) (0.6)

23 22 Full-year 2004 Vehicle interior modules Other modules Holding companies Total Net sales (excl. VAT) 8, , ,863.3 Inter-segment eliminations (49.0) (16.9) (77.9) (143.8) Consolidated sales 8, , ,719.5 Operating margin before amortization of contractual customer relationship (4.7) Operating margin after amortization of contractual customer relationship (4.7) Segment result Net interest expense Corporate income tax (46.9) Equity in net income of companies accounted for by the equity method 7.3 Net income Segment assets Property, plant and equipment, net 1, ,534.5 Other 3, ,607.5 Total segment assets 4, , ,142.0 Investments in companies accounted for by the equity method Other equity interests 1.6 Short- and long-term financial assets Tax assets (current and deferred) Total assets 7,113.6 Segment liabilities 2, (1.1) 2,992.7 Borrowings 2,291.4 Tax liabilities (current and deferred) Shareholders equity and minority interest 1,700.9 Total liabilities 7,113.6 Capital expenditure Depreciation of property, plant and equipment (261,5) (52,0) (2.0) (315,5) (75.9) 4-2- Sales by business segment (in millions) First-half 2005 % First-half 2004 % Full-year 2004 % Vehicle interior modules - Automotive seating 2, , , Vehicle interior 1, , , , , , Other modules - Exhaust systems , Front end , , , Total 5, , ,

24 23 5 OPERATING EXPENSES 5.1 Analysis by function First-half First-half Full-year (in millions) Cost of sales (5,157.2) (4,996.8) (9,740.5) Research and development costs (127.0) (139.4) (264.2) Selling and administrative expenses (168.5) (161.8) (311.9) Total (5,452.7) (5,298.0) (10,316.6) 5.2 Analysis by nature (in millions) First-half First-half Full-year Purchases used in production (3,685.0) (3,411.3) (6,664.5) External expenses (628.2) (716.6) (1,357.4) Payroll costs (1,034.7) (1,007.2) (1,944.5) Taxes other than on income (34.2) (31.4) (60.1) Other income and expense* Depreciation, amortization and provisions for impairment in value of non-current assets (239.9) (257.0) (480.3) Net releases of provisions Total (5,452.7) (5,298.0) (10,316.6) * including production taken into inventory or capitalized (development and tooling) Research and development costs (in millions) First-half First-half Full-year Research and development costs, gross (328.6) (295.6) (594.9). amounts billed to customers and changes in inventories amounts capitalized amortization of capitalized development costs (68.7) (79.7) (145.6). charges to and releases of provisions for impairment in value of capitalized development costs (0.7) Net expense (127.0) (139.4) (264.2) 5.4 Depreciation, amortization and provisions for impairment in value of non-current assets (in millions) First-half First-half Full-year Amortization of development costs (68.7) (79.7) (145.6) Amortization of other intangible assets (6.9) (5.8) (11.4) Depreciation of property, plant and equipment (162.8) (174.2) (315.5) Provisions for impairment in value of capitalized development costs (0.7) Provisions for impairment in value of other intangible assets and property, plant and equipment (0.8) (1.0) (18.0) Total (239.9) (257.0) (480.3)

25 OTHER OPERATING INCOME AND EXPENSE Other operating income and expense break down as follows: (in millions) First-half First-half Full-year Releases of/(charges to) provisions for contingencies and charges and for impairment in value of non-current assets, net 3.1 (1.9) (3.2) Rationalization costs* (62.2) (23.9) (62.3) (Charges to)/releases of provisions for early retirement costs (0.2) Gains/(losses) on disposals of assets, net (0.1) 48.4 Other (3.1) (2.0) 1.6 Total (62.4) (27.9) (11.8) * In first-half 2005, this item included restructuring costs in an amount of 62.9 million and releases of provisions for impairment in value of non-current assets in an amount of 0.7 million. 7- FINANCIAL INCOME AND EXPENSE 7.1 Interest expense, net (in millions) First-half First-half Full-year Interest income Interest expense (43.8) (42.4) (91.5) Total (34.5) (34.7) (75.9) 7.2 Other financial income and expense (in millions) First-half First-half Full-year Impact of discounting retirement benefit obligations (5.5) (4.6) (9.7) Changes in the ineffective portion of currency hedges (3.2) Change in the value of interest rate instruments (8.5) Other 1.8 (2.9) (4.7) Total (15.4) (5.4) (14.1) 8- CORPORATE INCOME TAXES The effective rate of tax for the first half of 2005 amounted to 29% compared with 30% for the first six months of 2004 and 25.8% for full-year Deferred tax assets corresponding to tax loss carryforwards that are not certain of being utilized are written down in the consolidated balance sheet. As of June 30, 2005, these assets amounted to million, compared with million as of December 31, 2004.