WABCO Holdings Inc. (NYSE: WBC), a global technology leader and tier-one supplier to the commercial vehicle industry, today reported Q4 2009 sales of $460 million, up 1 percent from prior year and down 9 percent in local currencies, bringing full year 2009 sales to $1.49 billion, down 42 percent from prior year and down 39 percent in local currencies, reflecting the unprecedented severe slump in global demand for new commercial vehicles.
"2009 was an unprecedented year for the global commercial vehicle industry, which abruptly and deeply dropped in size while going through a shakeup of market demand among regions of the world and significantly increasing the importance of Asia. Indeed, in the last 12 months, commercial vehicle production decreased by more than 60 percent in Europe and almost 40 percent in North America while production grew by 18 percent in China. In 2009, more than 60 percent of the world's truck and bus production took place in China and India," said Jacques Esculier, WABCO Chairman and Chief Executive Officer. "During the past five years, in anticipation of the growing importance of emerging markets, WABCO has been driving major initiatives to globalize the company's culture, capabilities and customer reach. In 2009, the future came faster than we thought but we were well prepared to morph with the market."
"Strongly rooted in China and India, WABCO has achieved a leading position in the marketplace through increasingly close connectivity to customers. We are further strengthened in Asia by an outstanding network of suppliers, manufacturing sites and engineering hubs. We produce some of our most advanced technologies right in Asia to serve local markets," said Esculier. "In Q4 2009, Asia accounted for 22 percent of sales, compared with 10 percent the prior year."
"In 2009, we also benefited from our efforts initiated a few years ago to grow our aftermarket globally. Q4 2009 revenues from aftermarket, in fact, increased by 13 percent year on year," said Esculier. "For full year 2009, we limited our decline in aftermarket sales to 6 percent."
WABCO reported Q4 2009 EBIT of $24.6 million, up from $15.2 million a year ago while performance EBIT was $26.5 million versus $43.3 million a year ago.
WABCO reported full year 2009 EBIT of $7.6 million, compared with EBIT of $247.8 million a year ago while performance EBIT was $38.9 million versus $301.1 million a year ago.
WABCO reported Q4 2009 net income of $38.7 million or $0.59 per diluted share versus net income of $21.2 million or $0.33 per diluted share a year ago. Performance net income for Q4 2009 was $23.2 million or $0.36 per diluted share versus performance net income of $39.5 million or $0.62 per diluted share a year ago. Performance net income excludes $13.9 million of benefits from certain one-time tax items in Q4 2009, in addition to other smaller items relating to streamlining and separation.
WABCO reported full year 2009 net income of $18.8 million or $0.29 per diluted share versus net income of $213.3 million or $3.24 per diluted share in 2008. Performance net income for full year 2009 was $25.7 million or $0.40 per diluted share versus performance net income of $246.8 million or $3.75 per diluted share a year ago.
Full year performance net income excludes certain non-performance items including streamlining expenses of $46.4 million (net of tax), favorable settlements resulting in the release of certain separation related indemnification obligations of $37.8 million, the previously disclosed charge from the Indian joint venture transactions of $9.8 million, and other tax related benefits of $11.5 million. In total, these non-performance items negatively impacted reported net income by $6.9 million for full year 2009.
WABCO generated $18.9 million in net cash from operating activities in Q4 2009 and used $7.6 million of free cash flow. Excluding payments of $10.2 million associated with streamlining, free cash flow in Q4 2009 totaled $2.6 million, reflecting the company's funding of increased business activities in Q4 2009.
WABCO generated free cash flow of $78.8 million for full year 2009. Excluding payments of $40.0 million associated with streamlining, free cash flow for full year 2009 totaled $118.8 million.
"Rising to the market challenges in 2009, we demonstrated, once again, our powerful ability to adapt to fast changing conditions and outperform industry dynamics. As early as mid 2008, we had already anticipated adverse global market conditions, and we swiftly launched decisive actions to align our capacity and cost structure for a significantly reduced level of market demand," said Esculier. "In the meantime, we continued to make progress on our three-pillar strategy of technology leadership, global expansion and excellence in execution."
"In 2009, we announced two breakthrough technologies: new clutch compressors and ESCsmart™ simulation system while our OptiDrive™ transmission automation system was named a finalist for the Automotive News PACE™ Award, the industry's benchmark for innovation. We entered into a long term supply agreement with CNHTC, China's largest producer of heavy duty trucks, to deliver our broad range of products from traditional valves all the way to our most sophisticated transmission automation systems," said Esculier. "In India, after acquiring majority control of our award-winning joint venture WABCO-TVS, we successfully integrated this world class subsidiary into our global organization. We further expanded our global customer base for OptiDrive systems through our long term agreement with Ashok Leyland, one of India's largest manufacturers of commercial vehicles."
"Amid WABCO's many accomplishments in 2009, our organization performed superbly, with high efficiency, maximum flexibility and fully under control. Across our worldwide manufacturing network, we further improved the overall quality of our products by 60 percent, reaching another exceptional level," said Esculier. "Demonstrating our commitment to safety in the workplace, we also improved the company's rate of occupational injury or illness in our factories by 20 percent, exceeding our superlative result from the previous years and continuing WABCO's industry-leading safety performance at yet another world class level."
"During 2009, we drove continuous improvements through our WABCO Operating System, one of our industry's most advanced management environments. Despite market turmoil that continued to strongly impact our suppliers and significant restructuring activities internally, our WABCO Operating System delivered $56.6 million of materials and conversion productivity, with materials productivity representing a record 6.1 percent of total materials cost. Among other strong positive results, we also achieved cost savings of $75 million in operating expenses, resulting in a reduction of approximately 19 percent year on year," said Esculier. "This major success helped maintain WABCO's full year 2009 profitability and generate free cash flow that well achieved the expectations in the company's previously disclosed 2009 operating framework."
Recent Highlights
In January 2010, WABCO announced that WABCO-TVS, the company's Indian subsidiary, won the India Manufacturing Excellence Award (IMEA) with "Super Platinum" distinction. Presented by The Economic Times in partnership with Frost & Sullivan, it is India's largest on-site audit of manufacturing practices benchmarked against global standards. The jury honored the WABCO-TVS manufacturing facility located in Chennai, India, as "Super Platinum" in recognition of the site's highest score among all other winners in 2009.
WABCO reported in January 2010 that it again supplied its most advanced, high performance braking technology to KAMAZ-Master, the Russian national off-road truck rally team and winner of Dakar 2010, the world's most challenging endurance rally. KAMAZ-Master trucks finished in first, second and fifth place at Dakar 2010, marking an unprecedented ninth time that KAMAZ-Master is the winner of the Dakar competition. WABCO has been supplying KAMAZ-Master heavy duty trucks for more than 10 years.
WABCO announced in January 2010 that its roll stability support (RSS) for trailers is the industry's first trailer roll-over control approved for use in all 27 countries of the European Union and in 20 other countries worldwide in accordance with the United Nations Economic Commission for Europe's Regulation 13 for braking. A new EU regulation requires vehicle stability with roll-over control for semi-trailers and heavy trailers, both with air suspension and up to three axles. It is compulsory for new type approvals from July 2010 and for new registrations from July 2011.
In January 2010, WABCO disclosed that it has developed and will supply breakthrough electronic control technology and an innovative high performance air supply system for original equipment manufacturer AUDI AG. WABCO's content will be equipped on the air suspension of the Audi A8 2010 model, Audi's new flagship luxury sedan. WABCO's electronic control unit is the passenger car industry's first application of air suspension using FlexRay™ technology for in-car data networking, resulting in faster and more highly reliable integration with the vehicle's other sensors and control systems.
Also in January 2010, WABCO introduced Trailer Immobilizer, a security innovation that significantly increases protection against trailer theft, as an additional function in the company's trailer electronic braking system (EBS). It blocks the wheels of a parked trailer to help prevent theft or unauthorized use. It is also the commercial vehicle industry's first trailer immobilizer system integrated with the vehicle's electronic braking system. It continues WABCO's 11-year track record of technology leadership in EBS for trailers.
In Q4 2009, WABCO announced that a global original equipment manufacturer headquartered in Europe has awarded WABCO a multi-year contract to supply an integrated pedal module to equip heavy and medium duty trucks for series production starting in 2013. Available for both automated and manual gearboxes, WABCO's integrated pedal module provides a standard interface in the vehicle's cab environment, resulting in lower installation costs and optimized logistics in original equipment manufacturing processes.
WABCO recently announced that its OptiDrive system, a breakthrough in transmission automation technology, has been named a finalist for the 2010 Automotive News PACE™ Awards, the automotive industry's benchmark for innovation. OptiDrive is a modular automated manual transmission system for medium and heavy duty commercial vehicles. It continues the company's 20-year track record of technology leadership in transmission automation.
WABCO was honored in Q4 2009 with two Technology Innovation Awards from one of China's largest manufacturers of commercial vehicles. Foton Group recognized WABCO's outstanding technological contribution to their trucks and Foton Bus Company praised WABCO's top innovation for their buses. Foton is ranked among China's 50 most valuable brands.
WABCO disclosed in Q4 2009 that the company and Yuchai Machinery Company have completed an agreement for product development and the long-term supply of twin-cylinder compressors for diesel engines to be mounted on heavy duty trucks. Yuchai is China's largest manufacturer of diesel engines for commercial vehicles for the past eight consecutive years and one of China's leading exporters serving more than 50 countries.
The company reported in Q4 2009 that WABCO and Chery Automobile Company have completed an agreement for product development and the long-term supply of vacuum pumps for automotive braking applications for diesel and gasoline direct injection engines. Chery is one of China's leading manufacturers of passenger cars and China's top ranked exporter of cars serving more than 70 countries. WABCO vacuum pumps for automotive braking systems utilize an ultra-low power consumption design that helps improve engine efficiency.
WABCO recently achieved a business breakthrough at one of its customers, Anhui Hualing Automobile Company (CAMC), one of China's major manufacturers of heavy duty trucks. Supplying the customer's trucks for both domestic and international markets, WABCO is providing anti-lock braking systems (ABS) and components for cabin air suspension systems on a sole supplier basis while also significantly furnishing other braking systems.
In Q4 2009, Meritor WABCO, the company's joint venture in North America, announced that System Saver 1200 Plus air dryers will be standard on all truck models of Daimler Trucks North America, as of January 2010. Developed specifically for North American air braking systems, the Meritor WABCO System Saver 1200 Plus is a high capacity air dryer that can be used in a wide range of vocational environments.
In Q4 2009, Meritor WABCO was awarded a significant contract by a major original equipment manufacturer of commercial vehicles to supply emission control valves, starting in January 2010, to help meet new engine requirements that came into effect in 2010 in the United States.
Also in Q4 2009, Meritor WABCO and a leading truck producer made an agreement for the supply of hydraulic clutch control systems, which include a master cylinder, slave cylinders and connecting technology for optional servo cylinders. The customer's volume production is scheduled to begin in April 2010.
As of 2009, Meritor WABCO marked another achievement in the company's technology leadership for commercial vehicle clutch technology. It now supplies clutch controls to three of the largest manufacturers of Class 8 trucks in North America. Class 8 trucks are the North American industry's heaviest duty with a gross vehicle weight rating above 33,000 pounds (14,969 kilos).
Full Year 2010 Guidance
Based on a set of market assumptions, the company's guidance for 2010 includes an estimated increase in 2010 sales of 15 to 20 percent in local currencies, full year reported operating margin from 4.5 to 6.5 percent, and performance operating margin from 5 to 7 percent, resulting in diluted earnings per share between $0.87 and $1.27 on a U.S. GAAP basis and between $1.00 and $1.40 on a performance basis. WABCO expects to convert between 80 and 90 percent of its net income into free cash flow, excluding streamlining and separation related payments.
"With our organization realignment and track record of excellent adaptability, we have enabled sufficient flexibility to take advantage of anticipated market opportunities. We will continue to connect more closely with customers and morph with the markets, especially in Asian and emerging countries," said Esculier. "We will fully capitalize on the exceptional efforts we made in 2009, resulting in our successful streamlining, major productivity gains, significantly reduced cost structure and an even more highly cost-effective WABCO Operating System. WABCO is well poised to generate superb incremental margins on future growth in the coming years."
WABCO Vehicle Control Systems (NYSE: WBC) is a leading supplier of safety and control systems for commercial vehicles. For over 140 years, WABCO has pioneered breakthrough electronic, mechanical and mechatronic technologies for braking, stability, and transmission automation systems supplied to the world's leading commercial truck, trailer, and bus manufacturers. With sales of $1.5 billion in 2009, WABCO is headquartered in Brussels, Belgium. For more information, visit www.wabco-auto.com
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