CORPORATES

CREDIT OPINION9 May 2016

Update

RATINGSValeo S.A.

Domicile Paris, France

Long Term Rating Baa2

Type LT Issuer Rating - FgnCurr

Outlook Stable

Please see the ratings section at the end of this reportfor more information.The ratings and outlook shownreflect information as of the publication date.

Analyst Contacts

Oliver Giani 49-69-70730-722VP-Senior Analystoliver.giani@moodys.com

Dirk Steinicke 49-69-70730-949Associate Analystdirk.steinicke@moodys.com

Yasmina Serghini 33-1-5330-1064VP-Sr Credit Officeryasmina.serghini@moodys.com

Anke Rindermann 49-69-70730-788Associate ManagingDirectoranke.rindermann@moodys.com

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

Valeo S.A.Annual Update

Summary Rating RationaleThe rating reflects the group's (i) high innovation rate of around 1/3 (as of 2015, newproducts in relation to order volumes); (ii) solid business profile, (iii) adequate leveragemetrics and (iv) balanced financial policy. Valeo ranks among the largest Europeanautomotive suppliers, has a broadly diversified product range and holds leading positions inits relevant market segments. The rating also reflects Valeo's global presence, which allows itto supply original equipment manufacturer (OEM) customers around the globe. In addition,the group generates around 11% of revenues in the generally less cyclical automotiveaftermarket.

During 2015, Valeo continued its track record of outperforming underlying market growth.The group's original equipment sales grew organically by 8% against total light vehicleproduction of approximately 2% during 2015, helped by product innovation and its strongfootprint in growth regions. Topline expansion allowed Valeo to improve its operating marginslightly by 0.3 percentage points and supported by relative improvements in its cost ofgoods sold. With an operating margin of 6.0% Valeo's performance is in line with industryaverage of a pure automotive parts supplier. Valeo's gross leverage of 2.2x debt/EBITDA as ofDecember 2015 is in line for the Baa2 rating especially when taking into account the group'ssubstantial cash position that increased to €1.7 billion compared to a range between €1.3 -1.5 billion during 2011-2014. Adjusted net leverage (net debt/EBITDA of 1.1x) and retainedcash flow (RCF) coverage (RCF/net debt of 61.9%) position Valeo strongly in the Baa2 ratingcategory. We expect that Valeo's EBITA margin and leverage metrics will further graduallyimprove in 2016 as Valeo is well placed to continue to grow faster than the market.

Exhibit 1

Leverage Development

Source: Moody's Financial Metrics

MOODY'S INVESTORS SERVICE CORPORATES

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 9 May 2016 Valeo S.A.: Annual Update

However, the following factors constrain the rating: Valeo's exposure to the cyclicality of automotive production rates, its exposure tovolatile raw material costs, the intense competition in the automotive market and its strong reliance on Europe, where it still generatesthe majority of revenues. In addition, the pending outcome of ongoing antitrust investigations poses a notable event risk.

Credit Strengths

» High innovation rate loosens link between revenues and earnings and cyclical automotive production volumes.

» Increasing global presence and aftermarket provide diversification benefits.

» The company has strong credit metrics and shows commitment to investment-grade rating

Credit ChallengesEarnings and cash flows are vulnerable to raw material price fluctuations.

Antitrust investigations pose event risk.

Rating OutlookThe stable outlook reflects our expectation that Valeo will be able to sustainably maintain (i) EBITA margin well above 5.5%, (ii)positive FCF generation, (iii) net leverage well below 2.0x net debt/EBITDA (while keeping gross leverage well below 3x debt / EBITDA),and (iv) an RCF/net debt above 35%.

Factors that Could Lead to an UpgradeWe would consider upgrading Valeo's ratings if the group were to maintain on a sustainable basis (1) a high single-digit EBITAmargin; (2) a net leverage below 1.5x net debt/EBITDA. Moreover, an upgrade would require Valeo to achieve (3) further positive FCFgeneration and (4) exceeding an RCF/net debt ratio of above 40% on a sustainable basis. Maintaining a continued balanced financialpolicy and building a track record of keeping strong financial metrics would also be a prerequisite for an upgrade.

Factors that Could Lead to a DowngradeWe would consider downgrading Valeo's ratings if (1) the group's profitability were to come under pressure, resulting in an EBITAmargin approaching below 5.5% or material negative FCF; or if (2) leverage increases, indicated by net leverage increasing towards 2.0xnet debt/EBITDA or retained cash flow coverage falling sustainably below 35% of net debt.

Key Indicators

Exhibit 2

Key Financial Metrics

(1) All ratios based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial CorporationsSource: Moody's Financial Metrics

MOODY'S INVESTORS SERVICE CORPORATES

3 9 May 2016 Valeo S.A.: Annual Update

Detailed Rating ConsiderationsHigh innovation rate loosens link between revenues and earnings and cyclical automotive production volumes

Valeo generates the vast majority of revenues (87% during 2015) with components for light vehicle production (OE sales). Thisbusiness is cyclical as demand for new cars is closely linked to the development of the overall economic environment. However,supported by a high innovation rate of approximately 1/3 (new products in relation to order volumes), Valeo has been able to markedlyoutperform growth in global car production through market share gains and positive mix effects (e.g., selling more value per vehicle). In2015, Valeo achieved strong organic sales growth of 8% in its OE business (like-for-like, excluding M&A and foreign exchange effects),compared with 2% growth in global car production. This strong growth confirms the positive development seen already in 2013 and2014 when Valeo's OE sales grew 10% and 9% respectively outperforming the market by 6% and 7%.

Increasing global presence and aftermarket provide diversification benefits

While we expect that the global light vehicles market will grow by 3% in 2016 and slightly slower by 1.8% in 2017, we expect Valeowill continue to outgrow the market in the near to medium term. This assumption is supported by about 15% growth in order intakein 2015. In addition, gradual improvement of Valeo's global reach in recent years - illustrated by the fact that Valeo's share of OErevenues generated in Europe and Africa decreased from 69% (of total sales) in 2007 to 49% (of OEM sales) in 2015 - mitigates therisk of a revenue and earnings decline in Europe, which is still Valeo's stronghold. Valeo improved its regional diversification partlythrough organic growth outside Europe but also through selective bolt-on acquisitions. Lastly, Valeo generates around 11% of revenuesin the aftermarket, which we consider to be less vulnerable to the economic cycle than the original equipment business. As a result, weexpect that Valeo's regional diversification and aftermarket business will reduce revenues and earnings volatility on group level.

Earnings and cash flows are vulnerable to raw material price fluctuations

Potentially volatile raw material costs pose another risk to Valeo. Valeo's raw material consumption consists primarily of steel (35%of raw material costs), plastics (25%) and non-ferrous metals (39%). Measures implemented over recent years have mitigated thesechallenges. In particular, Valeo has established raw material pass-through clauses, which allow the group to pass on price changesfor approximately 75% of non-ferrous metals and 50% of its steel consumption to its OEM customers. However, input materialsthat account only for a small fraction of costs can also have a material impact on earnings, as was the case in 2011 when soaringprices for rare earths burdened earnings of Valeo's powertrain business, although rare earth accounts for only 1% of total raw materialconsumption. In the meantime, Valeo has developed solutions that substituted rare earth consumption, and therefore has reduced itsexposure to price fluctuations of rare earths.

The company has strong credit metrics and shows commitment to investment-grade rating

Valeo's credit metrics are in line with the current rating. We note that Valeo consistently held a substantial cash position in therange of €1.3 - 1.5 billion during 2011 - 2014, which increased to €1.7 billion as of December 2015 on the back of strong free cashflow generation. Net debt/EBITDA of 1.1x and RCF/net debt of 61.9% position Valeo strongly in the rating category. With recentlyannounced bolt-on acquistions of Peiker and Spheros in Germany, we would expect Valeo's credit metrics to weaken modestly, but toremain comfortably within our expectation for the Baa2 rating.

Valeo's free cash flow (FCF) generation is strong. During 2015 the company generated a FCF of €269 million, equal to a coverage of17.4% of net debt despite increased dividends and capex spending. While the company's reported gross debt (excluding put optionsgranted to holders of non controlling interests) reduced by €94 million, its adjusted gross debt remained largely unchanged. Driven bya material increase in cash, Valeo's adjusted net debt decreased by €453 million despite of higher operating leases (+€24 million to€219 million as of 2015) and increased utilization of the securitization program (+€70 million to €306 million as of 2015).

Valeo's financial policy is balanced, and management is strongly committed to an investment-grade rating. The current ratingassumes that Valeo will evaluate focused acquisitions in order to strengthen Valeo's global position or its technological footprint whilemaintaining a conservative financial policy with regard to potential M&A activity.

MOODY'S INVESTORS SERVICE CORPORATES

4 9 May 2016 Valeo S.A.: Annual Update

Antitrust investigations pose event risk

In 2011, US, European and Japanese antitrust authorities initiated antitrust investigations in the areas of components and systemssupplied to the automotive industry against numerous automotive suppliers, including Valeo. In September 2013, Valeo Japan Co. Ltd,a subsidiary of Valeo S.A., agreed to pay a fine of USD13.6 million and entered into a plea agreement with the US federal authorities,which terminated this anticompetitive investigation against the companies of the Valeo Group in US. However, certain antitrustinvestigations are still ongoing with other antitrust authorities. At this stage, Valeo does not have any information on the possibleoutcome of the investigations. However, we caution that because of the level of fines that the authorities could levy, the investigationscould have a material adverse impact on Valeo's future earnings.

At the same time, Valeo's very solid cash position would allow it to absorb a potential fine of several hundred million Euros withoutan immediate need to raise additional debt. Hence, at this stage, we do not expect that the impact on credit metrics will be severeenough to affect the group's rating. Furthermore, Valeo's market position and profit margins should not materially suffer from theinvestigations given the group's established customer relationships, global reach and strong product offering. Nonetheless, the riskassociated with the investigation is a credit negative, which we will closely monitor.

Liquidity AnalysisMoody's considers Valeo's liquidity position to be strong. According to Moody's estimate, the company's cash outflows for the 12months period ending in December 2016 including capital expenditure, debt repayments, dividends, working capital and workingcash required to run the business, will add up to approximately €2 billion. This should be well covered by €1.7 billion cash and cashequivalents on hand, the company's funds from operations estimated to exceed €1.2 billion and full availability under the company'scommitted credit lines of €1.2 billion with an average maturity of approximately four years. Valeo's credit lines contain conditionalitylanguage in the form of a 3.25x net debt/EBITDA financial covenant with ample headroom as of December 2015 (actual ratio less than0.1x).

ProfileHeadquartered in Paris, Valeo S.A. is one of the leading global suppliers of automotive components for new cars and light vehicles(original equipment or OE) and the aftermarket (around 11% of group revenues). In 2015, Valeo generated revenues of €14.5 billion(IFRS11 adjusted). The group has a workforce of approximately 82,800 employees and is present in 30 countries. Valeo has fourbusiness divisions: (i) Comfort and Driving Assistance Systems (18% of 2015 group revenues); (ii) Powertrain Systems (26%); (iii)Thermal Systems (28%); and (iv) Visibility Systems (28%). The group's product range consists of clutches, electrical systems, switchingand driver interface modules; sensors; air-conditioning systems and modules; heating and cooling products; filters; windshield wipers;and lighting systems. Valeo's shares are publicly listed. As of 18 February 2016, the largest shareholder was Lazard Asset Management,a financial institution that is publically listed, which holds a total of 5.06% of share capital (4.84% of voting rights).

Rating Methodology and Scorecard FactorsGrid indicated rating

Moody's rating methodology for the automotive supplier industry points to Baa2 for Valeo. While scale of the business is shown as akey strength of the credit, the grid points to profitability a weakness. The actual rating assigned is at the same level as the indicationreceived from the grid reflecting the company's focus on innovation and the success in growing the business above market which isalso reflected in a Baa2 grid indication for the next 12-18 months forward view.

MOODY'S INVESTORS SERVICE CORPORATES

5 9 May 2016 Valeo S.A.: Annual Update

Exhibit 3

Rating Factors and Forward View

(1) All ratios based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations; (2) As of 12/31/2015 - Moody's Financial Metrics; (3)This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divesturesSource: Moody's Financial Metrics, Moody's Estimates

Ratings

Exhibit 4Category Moody's RatingVALEO S.A.

Outlook StableIssuer Rating Baa2Senior Unsecured -Dom Curr Baa2Subordinate MTN -Dom Curr (P)Baa3Commercial Paper -Dom Curr P-2

Source: Moody's Investors Service

MOODY'S INVESTORS SERVICE CORPORATES

6 9 May 2016 Valeo S.A.: Annual Update

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