arvinmeritor _Morgan_Stanley_Conf_031808_FINAL


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arvinmeritor _Morgan_Stanley_Conf_031808_FINAL

  1. 1. 2008 Morgan Stanley Global Automotive Conference Phil Martens President, Light Vehicle Systems 1
  2. 2. Forward-Looking Statements This presentation contains statements relating to future results of the company (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to global economic and market cycles and conditions; the demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating abroad (including foreign currency exchange rates and potential disruption of production and supply due to terrorist attacks or acts of aggression); availability and cost of raw materials, including steel and oil; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; reliance on major OEM customers; labor relations of the company, its suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of the company’s suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; successful integration of acquired or merged businesses; the ability to achieve the expected annual savings and synergies from past and future business combinations and the ability to achieve the expected benefits of restructuring actions; success and timing of potential divestitures; potential impairment of long-lived assets, including goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the amount of the company’s debt; the ability of the company to continue to comply with covenants in its financing agreements; the ability of the company to access capital markets; credit ratings of the company’s debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; the outcome of actual and potential product liability and warranty and recall claims; rising costs of pension and other post-retirement benefits and possible changes in pension and other accounting rules; as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the SEC. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. 2
  3. 3. ArvinMeritor a Most Admired Company • Outside validation from March 17 edition of Fortune magazine • ArvinMeritor ranked number #3 among the best global automotive suppliers • Rated for 8 key attributes of reputation: 1. Innovation 2. People management 3. Use of corporate assets 4. Social responsibility 5. Quality of management 6. Financial soundness 7. Long-term investment 8. Quality of products/services 3
  4. 4. Customer Base 2007 Sales Commercial Vehicle Customers Light Vehicle Customers Volkswagen 65% 7% Chrysler Commercial Other CVS 6% 18% Vehicle Asian Based OEMs 5% Ford 1% Ford 2% PSA 2% Volkswagen 2% General Motors 1% General Motors 2% Fiat 3% PACCAR 3% Other LVS 12% International 4% 35% Light Asian Based Vehicle OEMs 7% Volvo 16% Daimler 9% 4
  5. 5. Light Vehicle Systems is a globally integrated Tier 1 systems supplier with a robust business portfolio that limits geographic and customer risk exposure 5
  6. 6. Light Vehicle Systems CHASSIS BODY Roof SYSTEMS SYSTEMS Systems Latches Window Vehicle Regulators Dynamics Door Modules Springs Motors Suspension Modules smart systems™ smart systems™ smart systems™ smart systems ™ smart systems™ smart sys Steel Wheels WHEELS 6
  7. 7. Characteristics of the Best Automotive Suppliers 1. Truly global business model and footprint 2. A diverse product portfolio of new technologies 3. Diverse portfolio of leading customers and platforms LVS positioned to be one of the best 7
  8. 8. Global Business Model and Footprint Geographic Sales Mix 2005 2007 AP AP SA 4% 6% 5% SA 10% North North America America 38% 50% Europe Europe 46% 44% Shifting global reach and capability 8
  9. 9. Full Product Pipeline 2008 2009 2010 HIP NAL LER Body Systems EDCM PSD NAM NEM LFI Launching 45 CG Launching 45 programs programs in 2008 in 2008 Launching 30 Launching 30 Chassis AA programs programs 50% of LVS 50% of LVS in 2009 AS in 2009 revenue projected revenue projected AD to come from new to come from new products by 2010 products by 2010 Wheels 780 HVA HVA CLAD CC EUF smart systemsTM products coming to market by 2010 9
  10. 10. Strength in Customer and Platform Mix Customer Mix Top Platforms Key Vehicles (2007 Value-Added Sales) VW PQ34/35 Golf, Touareg, Audi A1 Other Hyundai NF/CM Santa Fe, Sonata Honda VW PQ24/25 Polo, Ibiza, Audi A2 Toyota VW Renault C Megane, Scenic Fiat issan Ford Europe C1 Focus, C-MAX, S40/V50 BMW Dodge DR-DE Ram Hyundai Chrysler VW 7L Audi Q7 Renault Peugeot PF1 207 Ford GM GME Gamma Opel Corsa PSA Chrysler WK Cherokee, Commander High concentration with customers based outside N.A. 10
  11. 11. The Power of Capability Global Business Model Leading global customer seeks moon roof supplier-partner with engineering and manufacturing strength in Asia, Europe and North America Products and Pipeline Needs innovative new product with added features and competitive cost Right Customers & Platforms ArvinMeritor sourced for new global program using global motor architecture; grows with hot new platform with key Asian derivative; all sourcing in LCCC, including new plant in China Leadership in all three areas allows us to win 11
  12. 12. Delivering on Priorities for 2008 1. Radically improve cost base through restructuring of supply chain and manufacturing network. 2. Improve Free Cash Flow by institutionalizing ArvinMeritor Production System (APS), program management and working capital improvement programs. 3. Capitalize on aggressive growth opportunities in emerging regions with profitable expansion plans. 4. Global alignment of LVS businesses with market- leading OEMs. 5. Improve long-term earnings power of portfolio through launch of smart systems™ applications. Constancy of purpose 12
  13. 13. 1. Radically Improve Cost Base Through Restructuring Difficult Decisions: Fix, Sell or Close Roofs • Few competitors, technology Why fix? leadership, good customer mix, significant growth opportunities • Eliminate $20 million annual Goal operating cost • Maximize synergies with Doors, close Actions Frankfurt plant, consolidate global engineering through off-shore engineering center, revisit customer terms, win new business • Eliminated 160 positions in Germany Results and France through consolidation of shared functions, achieved benchmark ER&D and SG&A levels, 100% of Roofs capacity in LCCCs Aiming for breakeven in 2008 and profitability in 2009 13
  14. 14. 1. Radically Improve Cost Base Through Restructuring Footprint Optimization and Increasing Engineering Capability in Growth Regions N. America S. America Europe Asia Pacific •Toronto •Brussels •Restructure •Frankfurt Out some labor agreements Production •Expand •Expand Brazil •Expand •Changchun Puebla Body Systems Lozorno •Pune In •Expand San •Extend •Romania •Waigaoqaio Luis Potosi offering from •Wuhu Venezuela JV •S. America •Consolidate •Offshore Tech Center Body Engineering Engineering Engineering Center Dramatic shift to LCCCs: 7 new facilities & 4 expansions 14
  15. 15. 1. Radically Improve Cost Base Through Restructuring Record Year for Cost Reductions • First quarter labor and burden performance substantially exceeded prior year’s achievement. • Material performance more than 100% higher than the previous year • APS overdelivering • Stretching for additional material cost reductions Operational improvements accelerating and improving bottom line 15
  16. 16. 1. Radically Improve Cost Base Through Restructuring Addressing Steel Costs Head-On • Steel suppliers asking for substantial price increases, but supplying according to long-term contracts • Planning for cost increase when contracts reset • Exploring alternate supply • Good track record of recovery with most customers, including some indexed contracts • Challenging discussions ahead with other customers Will do what is needed to protect our business 16
  17. 17. 2. Improve Free Cash Flow 2008 Cash Flow Recovery Actions • Scour inventories for efficiencies – Eliminate warehousing costs – Streamline pipeline costs – Implement more consigned inventory – Increase turns in plants through APS • Heightened cash management with customers – Enforce terms of existing contracts – Negotiate better terms – Aggressive actions on past due accounts receivable – Carefully monitoring customer credit-worthiness • Seasonal factors will benefit second half of year Reversing Q1 working capital outflow 17
  18. 18. 3. Profitable Growth in Emerging Markets Expanding Rapidly in Asia Pacific • Able to offer the full product portfolio in China • Launching 20 new programs in FY 2008 • Building 3 plants – Chassis JV with Chery in Wuhu - $100 million projected by 2010 – Body Systems roofs facility in Waigaoqiao, China – Body Systems doors facility in Pune, India • Tech Center opening in Pune, India 18
  19. 19. 3. Profitable Growth in Emerging Markets Growing from Strong Base in South America • YTD sales up 24% in Brazil – Mercosur now the world's 6th largest automotive market • Potential to double business from all LVS businesses within region • Leverage existing footprint in the region to grow presence – Wholly-owned facilities in Brazil (steel wheels and body system components) – Existing JV partnership in Andean market (chassis components and modules) • Announcing new technical center New LVS Innovation & Technical Center for LVS South America in Limeira, Brazil 19
  20. 20. Light Vehicle Systems: Subtitle 4. Global Alignment with the Right OEM Customers Hyundai: A Strategic Partner Globally • Already 3rd largest customer in North America before recent awards • Also supplying a significant amount of business in Korea • New awards expand the relationship and leverage global capability – Four million smart systemsTM window motors per year, benefiting from global commonality and reach – First North America application of smart systemsTM Highly-Integrated Plastic (HIP) door module for the new Hyundai Sonata – Next generation corporate Hyundai Global Latch to be launched on Sonata; adaptable to other platforms Innovation and delivery build strategic relationships 20
  21. 21. 5. Improve Portfolio through Launch of smart systems Products Capability, Collaboration and Commercialization Capability • Globally networked engineering team focused on improving vehicle systems’ performance and integration • Emphasis on materials engineering generating value – Example: New crash-resistant material for panoramic roofs improves safety and integrates luxury features Collaboration • Development contracts for advanced chassis products with four OEMs from multiple regions – Example: Military chassis applications addressing vertical load management Commercialization • Launching 45 new programs this year, including the HIP module for both North America and Europe, a new Chinese latch and global large-opening roof system production 21
  22. 22. 5. Improve Portfolio through Launch of smart systems Products Composite Coil Spring • Improved fuel economy through weight reduction – 50 to 60% weight reduction vs. steel equivalent – Typical weight savings for a passenger car with four coils is 12 – 14 lbs. – Typical weight savings for a light truck with two coils is 12 – 15 lbs. • Material cost and durability are competitive with steel • Corrosion protection is not required • Environmentally friendly: no quench and temper • Flexible design • Scalable manufacturing can be located close to OEM Innovation begins with understanding customer needs 22
  23. 23. Delivering on Priorities for 2008 1. Radically improve cost base through restructuring of supply chain and manufacturing network. 2. Improve Free Cash Flow by institutionalizing ArvinMeritor Production System (APS), program management and working capital improvement programs. 3. Capitalize on aggressive growth opportunities in emerging regions with profitable expansion plans. 4. Global alignment of LVS businesses with market- leading OEMs. 5. Improve long-term earnings power of portfolio through launch of smart systems™ applications. Constancy of purpose 23
  24. 24. Financial Review Mary Lehmann Senior VP, Strategic Initiatives, and Treasurer 24
  25. 25. 2008 Industry Planning Assumptions Calendar Year Basis North America Other Regions/Metrics 1.5% 1.7% U.S. GDP growth 2.2% Europe GDP growth 1.9% U.S. light vehicle industry sales W. Europe light vehicle industry 15.5 17.1 15.5 17.1 (millions) sales (millions) Europe medium & heavy truck 220-240 560-570 Class 8 truck production (000) 235-255 540-550 production (000) 180-195 160-175 Europe trailer production Class 5-7 truck production (000) 180 165 Asia medium & heavy truck 195-210 Trailer production (000) 250 1,340 production (000) Much CV aftermarket industry growth Flat Steel price change Increasing ex. pricing Worse South America light vehicle Higher MRAP production 11,900 3.8 production (millions) 25
  26. 26. 2008 Internal Planning Assumptions Year-to-Date Trends Initiative Progress Improve CVS Europe Operational Effectiveness Performance Plus Cost Reductions Direct Material Overhead Manufacturing Labor & Burden Commercial Vehicle Aftermarket Growth Commercial and Legal Dispute with Customer 26
  27. 27. Performance Plus Achievement of Run-Rate Cost Savings in 2008 Annualized EBITDA Impact from Cost Saving Actions $ Millions 240 $232M Ideas that will save 220 Team Targets $75 million per year 200 had been $197M implemented by the 180 end of February December Implementation Plan 160 Period savings for 140 the first fiscal Risk Adjustment quarter were $12 120 $115 M million 100 80 60 $75M Period Savings 40 20 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct 27
  28. 28. Forecast Update Fiscal Q2 Compared to Q1 Performance Plus Cost Reductions + Direct Material + Overhead + Labor & Burden + Europe Truck Production and Productivity + Military, Off-Highway and Aftermarket + Normal Tax Rate - Steel Prices • Reaffirming full-year guidance at $1.40-$1.60 EPS from continuing ops before special items and cash flow guidance of $(75)-$(125) million Operational improvements overwhelming market factors 28
  29. 29. Q&A 29