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Investor Presentation Q1 2016
Interim Statement
PKC Investor Presentation Q1 2016 May 4, 2016 Matti Hyytiäinen, President & CEO
• In North America truck production declined especially in heavy-duty trucks
• Truck demand in Europe continued to recover while Brazilian market is in recession. In China truck demand began cautious growth
Q1 2016 Highlights
PKC Investor Presentation Q1 2016
Business Environment
PKC’s Operations
PKC’s Financial Performance
• European manufacturing footprint improvement and program transfers continue
• In China, the JV’s quality and productivity are increasing
• EBITDA improved
• Electronics classified as discontinued operations
North America Market
PKC Investor Presentation Q1 2016
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2011 2012 2013 2014 2015 2016 2017 2018
Heavy Duty Trucks Medium Duty TrucksSource: LMC Automotive forecasting Q4/2014
Production units
-27%-3%
+14%
-3%
EPA 2014 1st stage
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
Heavy Duty Trucks Medium Duty Trucks
+9%
+5%
Source: LMC Automotive forecasting Q1/2016, ACT Build History April 2016, PKC Group
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
2011 2012 2013 2014 2015 2016 2017 2018
Light Vehicle (Pick-up and SUV)
+2%+7%
60%
40%32%
68%
Heavy Duty Trucks Medium Duty Trucks
Market Share 1-3/2016
Production units
Production units
-11%
-7%
EPA 2014 2st stage
EU27 + EFTA Market
PKC Investor Presentation Q1 2016
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2011 2012 2013 2014 2015 2016 2017 2018
Heavy Duty Trucks Medium Duty TrucksSource: LMC Automotive forecasting Q4/2014
Production units
+9%
+0%
+14%
-3%
EURO 6
0
20,000
40,000
60,000
80,000
100,000
120,000
Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
Heavy Duty Trucks Medium Duty Trucks
+13%
+14%
Source: LMC Automotive forecasting Q1/2016, PKC Group
42%
58%
23%
77%
Heavy Duty Trucks Medium Duty Trucks
Market Share 1-3/2016
Production units
-5%
-9%
Brazil Market
PKC Investor Presentation Q1 2016
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2011 2012 2013 2014 2015 2016 2017 2018
Heavy Duty Trucks Medium Duty TrucksSource: LMC Automotive forecasting Q4/2014
Production units
+2%
-29%
+14%
-3%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
Heavy Duty Trucks Medium Duty Trucks
-53%
-32%
Source: LMC Automotive forecasting Q1/2016, PKC Group
30%
70%
2%
98%
Heavy Duty Trucks Medium Duty Trucks
Market Share 1-3/2016
Production units
+10%
-30%
PKC estimates production volume to continue to decrease
China Market
PKC Investor Presentation Q1 2016
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2011 2012 2013 2014 2015 2016 2017 2018
Heavy Duty Trucks Medium Duty TrucksSource: LMC Automotive forecasting Q4/2014
Production units
+5%
+6%
+14%
-3%
0
50,000
100,000
150,000
200,000
250,000
Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
Heavy Duty Trucks Medium Duty Trucks
-28%
-18%
Source: LMC Automotive forecasting Q1/2016, PKC Group
9%
91%
0%
100%
Heavy Duty Trucks Medium Duty Trucks
Market Share 1-3/2016
Production units
+9%
-8%
EURO 4 EURO 4
Revenue from Continuing Operations
PKC Investor Presentation Q1 2016
12 9 9 6 7
0
25
50
75
100
125
150
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
South America
1 1 4 14 100
25
50
75
100
125
150
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
APACEUR million EUR million
54 5864
77 76
0
25
50
75
100
125
150
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
EuropeEUR million
138 142136
123 120
0
25
50
75
100
125
150
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
North AmericaEUR million
Headcount, Average in Continuing Operations
PKC Investor Presentation Q1 2016
12,306 12,713 12,304 12,18611,281
0
2,500
5,000
7,500
10,000
12,500
15,000
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
North America
5,248 5,466
7,501 7,607 7,829
0
2,500
5,000
7,500
10,000
12,500
15,000
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
Europe
2,213 1,736 1,553 1,301 1,284
0
2,500
5,000
7,500
10,000
12,500
15,000
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
South America
69 64 294 786 8730
2,500
5,000
7,500
10,000
12,500
15,000
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
APAC
• North American heavy-duty and medium-duty truck production is estimated to decrease by 17% compared to previous year’s level
• European heavy-duty and medium-duty truck production is estimated to increase by 7% compared to previous year’s level
• Brazilian heavy-duty and medium-duty truck production is expected to continue to decrease
• Chinese heavy-duty and medium-duty truck production is expected to grow by about 5% compared to previous year’s level
• The demand for the rolling stock is expected to continue to grow steadily
Market Outlook – Full Year 2016
PKC Investor Presentation Q1 2016
• PKC Group estimates that with prevailing exchange rates 2016 revenue from continuing operations (i.e. excluding Electronics business) will be at or above previous year level and comparable EBITDA from continuing operations will be higher than previous year level.
• Outlook includes higher than average uncertainty related to the North American heavy-duty truck production volumes during rest of the year
• In 2015, PKC’s revenue from continuing operations was EUR 847.3 million and comparable EBITDA from continuing operations was EUR 59.5 million
PKC Group’s Outlook
PKC Investor Presentation Q1 2016
• Revenue from continuing operations increased +3%
– Revenue in North America declined due to lower truck production volumes, especially heavy-duty trucks
– European truck revenue grew
– Increased production in China and in the rolling stock segment
• Comparable EBITDA from continuing operations continued to improve
– Better productivity and production arrangements in Europe improved EBITDA
– EBITDA in North America declined owing to lower volumes, weakened utilization rates and unfavourableproduct mix
– The recent transactions in Poland and China contributed to EBITDA
Revenue and EBITDA, Q1 2016
PKC Investor Presentation Q1 2016
205.9209.4
212.2
220.0
212.7
170
180
190
200
210
220
230
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
Revenue
EUR million
13.9 15.0 15.2 15.4 15.8
6.8 7.2 7.2 7.0 7.4
-4
-2
0
2
4
6
8
10
-10
-5
0
5
10
15
20
25
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16
Comparable EBITDA Comparable EBITDA, % of revenue
EUR million %
Key Figures
PKC Investor Presentation Q1 2016
EUR million
(from continuing operations unless
otherwise noted)
1-3/16 1-3/15 Change
%
1-12/15
Revenue 212.7 205.9 +3.3 847.3
EBITDA1)15.8 13.9 +13.8 59.5
EBITDA%1)7.4 6.8 7.0
Items affecting comparability - -0.6 -8.8
Operating profit 7.9 6.2 +29.6 20.2
EPS (EUR) 0.13 0.11 +18.7 0.23
Net cash from operating activities2) -34.0 -29.7 14.8
Working capital2)3) 122.4 103.5 92.7
ROCE, % 2)4) 9.7 9.8 9.9
Gearing, % 2) 56.4 8.8 31.4
Average headcount 21,294 19,854 +7.2 20,8551) Excluding items affecting comparability2) Comparison periods include assets and liabilities of discontinued operations3) Inventories + trade receivables - trade payables4) ROCE, % = Adjusted operating profit (excl. items affecting comparability) / ((Total equity + interest-bearing liabilities)(average))
Cash Flow
PKC Investor Presentation Q1 2016
41.0
14.8
-20.3
-15.7
20.7
-0.9
0.0
-22.5
20.7
-23.4
-30
-20
-10
0
10
20
30
40
50
2014 2015
Cash from operations Net capex (organic)
Cash after net capex Acquisitions
Free cash flow
EUR million EUR million
-29.7
-34.0
4.5
-13.6
53.6
-40
-30
-20
-10
0
10
20
30
40
50
60
2015 2016
Q1 Q2 Q3 Q4
Cash from operations
EUR million
Q1 2016 from continuing operations
Balance Sheet and Return
PKC Investor Presentation Q1 2016
29.0
35.8
29.7
0
5
10
15
20
25
30
35
40
2015 Q1/15 Q1/16
Equity ratio, %*
31.4
8.8
56.4
-10
0
10
20
30
40
50
60
70
80
90
100
2015 Q1/15 Q1/16
Gearing, %*
49.4
88.7
59.5 61.4
0
10
20
30
40
50
60
70
80
90
100
2015 Q1/16
Net debt* EBITDA**
9.9 9.8 9.7
0
2
4
6
8
10
12
14
16
18
20
2015 Q1/15 Q1/16
ROCE, %*
%
EUR million %
%
* EBITDA of previous 12 months excl. items affecting comparability ROCE % = Adjusted operating profit (excl. items affecting comparability) /
((Total equity + interest-bearing liabilities)(average))
** Comparison periods include assets and liabilities of discontinued operations
PKC’s Strategy Captures Growth
Opportunities
PKC Investor Presentation Q1 2016
PKC Investor Presentation Q1 2016
PKC’s existing addressable market amounts to about EUR 4 billion
• Trucks in North America, Europe and South America EUR 1.5 billion
• Construction equipment globally EUR 0.7 billion
• Agriculture equipment globally EUR 1.5 billion• Buses globally EUR 0.2 billion
New market opportunities equal to addressable market growth by about EUR 5 billion by 2018
• APAC truck wiring harnesses EUR 1 billion• Rolling stock control panels, power packs and
wiring harnesses globally EUR 2 billion• Aerospace wiring harnesses globally
EUR 2 billion
PKC Strategy 2018 – Doubling
the Addressable Market
1.5
1.5
0.7
0.2
Existing marketabout EUR 4 billion
Truck
Agriculture
Construction
Bus
1.0
2.0
2.0
New market opportunitiesabout EUR 5 billion
APAC Truck
Rolling stock
Aerospace
PKC Investor Presentation Q1 2016
• Doubling the addressable market
• Improved manufacturing footprint and expansion of engineering services enable to maintain strong market position in western truck markets and to capture further growth opportunities
• Expansion into rolling stock market well received by the customers, working on to globalize commercial relationships with the main industry OEM’s
• 2nd Chinese PKC joint venture signed. PKC knowhow recognized by the market and further organic and inorganic opportunities identified and in progress
Strategy Execution Proceeding
• PKC Group has signed an agreement to establish 50/50 joint venture (JV) with Anhui Jianghuai Automobile Co., Ltd (JAC) subsidiary Hefei Jianghuai Automobile Co., Ltd (Hefei JAC)
• JV will comprise the current wiring harness business of JAC group with aim to gradually insource currently outsourced harnesses
• PKC market share in both medium and heavy duty truck segments in China grows by 5%-points
• JV will expand PKC’s business to very sizable light truck segment as well to other commercial and light vehicle models
• The finalisation of the JV is subject to usual conditions including e.g. negotiating the related agreements and authority approvals
• The finalisation is targeted in the second half of year 2016, and the JV will be consolidated to PKC Group as of the date of starting the operations
PKC Group makes a major breakthrough in China
and establishes JV with JAC
PKC Investor Presentation Q1 2016
PKC’s market position in world’s biggest truck
market will increase significantly
World’s medium and heavy truck production, ‘000 trucks
11985
417
568
663715
169 150
477514
787
930
0
250
500
750
1,000
East Europe,Middle Eastand Africa
SouthAmerica
West Europe North America Asia-Pacific,Exc. China
China
2015 2018
Source: LMC Automotive Q4 2015
Year 2015 Year 2018
Light trucks 3,977,734 4.032,019
Buses 164,299 186,257
China is also the world’s biggest light truck and bus market
PKC’s market share
development in China:
Currently:
• Heavy-duty 10%
• Medium duty 0%
After JV:
• Heavy-duty 15%
• Medium duty 5%
JV also expands PKC’s
presence in the world’s
biggest light truck and bus
market in China.
PKC Investor Presentation Q1 2016
JAC is stock listed automotive group with
ambition to grow both in China and abroad
• Headquarters, R&D center and main factories in Hefei, Anhui province
• Produces close to 600,000 vehicles p.a. and 400,000 engines p.a.
• Target to gain more market share by meeting various end market requirements
• Product portfolio covers all commercial vehicle segments as well as light vehicle
models
• Annual revenue EUR 6.7 billion and employs 33,000 people
Beijing
HefeiShanghai
PKC Investor Presentation Q1 2016
JV creates strong business basis and significant
growth opportunities to PKC (1/2)
JV to become the primary harness supplier to JAC
• JV is targeted to get minimum of 70% of JAC’s wiring harnesses
purchases over the next few years
• JAC’s current wiring harnesses buy appr. EUR 140 million p.a.
JAC continues to invest in its vehicle offering
• Tighter government regulation and higher customer demands in
China raise wiring harness content
• JAC will invest in improved quality and performance of its vehicles.
More features are added to vehicles and thus electrical system
becomes more complicated and critical.
JV’s business plan shows steady growth
• JAC and PKC have agreed on JV’s business plan for years 2016 -
2021
• According to business plan JV’s annual revenue will grow steadily
PKC Investor Presentation Q1 2016
JV creates strong business basis and significant
growth opportunities to PKC (2/2)
JV expands PKC’s product offering to new segments in China
• Business is expanded to buses, light trucks, vans, pick –up trucks and various other light vehicles
Increased PKC brand recognition and foothold in China brings further business
opportunities
• PKC has excellent competitive position to expand its business in China to current customers and the
leading Asian and Chinese truck manufacturers through PKC’s unique expertise in managing
complexity
PKC Investor Presentation Q1 2016
Transaction Highlights Summary
Transaction in brief
• The JV is accomplished via a new company that will be established with Hefei
JAC with an equity valuation of RMB 100 million / EUR 14 million*
• PKC holds 50% and Hefei JAC 50% of the equity
• PKC will contribute RMB 50 million / EUR 7 million cash
• Transaction is financed from PKC’s cash resources
• The JV contract contains specific terms regarding PKC’s right to consolidate
Impact to PKC
group’s financials
• The deal has no significant impact yet to PKC Group 2016 results
• The JV will be consolidated to PKC Group financials
Timetable
• The agreement was signed on 29 March 2016
• The finalisation of the JV is targeted in the second half of 2016
• The finalisation is subject to usual conditions including authority approvals
• Integration starts after the finalisation of the JV
* Latest RMB/EUR exchange rate
PKC Investor Presentation Q1 2016
PKC Group Plc
Bulevardi 7
FI-00120 Helsinki, Finland
www.pkcgroup.comPKC Investor Presentation Q1 2016