Valeo today reported a significant decline in its sales and a fall into the red for its first quarter. However, the company noted that its 33.4% fall in sales was less than the 38% drop in automobile production worldwide.

The tier one supplier also said it had seen a slight improvement since March in Europe - thanks to vehicle scrapping programmes - and in some emerging markets.

The net loss was EUR159m versus a profit of EUR43m in Q1 2008. The company said the loss takes into account the impact of other income and expenses (including inefficient exchange rate and raw material hedges for EUR13.5m) as well as a EUR35m loss corresponding to restructuring and asset depreciation announced by the Japanese associate company Ichikoh, in which Valeo has a 31.6% shareholding.

"The collapse of global automobile production which began in the fourth quarter of 2008 (-21%) accelerated significantly in the first quarter of 2009 (-38%). Since March, there has been a slight improvement in some key markets in Europe, thanks to vehicle scrapping programmes (Germany, France, Italy), and in Brazil, as well as a noticeable turnaround in China. In each of the world's major markets, Valeo registered a decrease in sales lower than the drop in automobile production. Sales were down by 33%," Valeo said in a statement.

The company's net financial debt totalled EUR933m. The net financial debt to equity ratio is 80% (excluding minority interests). Valeo said that as of 31 March 2009, none of its EUR1.2 bn of confirmed credit lines had been drawn upon. "The group's liquidity therefore remains intact," it added.

Looking forward, the company said: "Despite the impact of the various vehicle scrapping programmes, Valeo anticipates a further drop in global automobile production, but at a less pronounced rate starting in the second quarter 2009. The group confirms its forecast of a decrease in global automobile production of around 30% for the first half and 20% for the full year."

It said it would reinforce its cost reduction plans which will enable it to get through the crisis and optimise the return to growth. The annualised global savings are predicted to be EUR600m, EUR500m in 2009.

The group added that is was also focusing on boosting liquidity and controlling cash. Investments will be cut by a third.

"Free cash flow for the year will be negative but will not significantly exceed the amount of expenses committed for restructuring programme," it said.