Westport Corporate Overview


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Westport engineers the world's most advanced natural gas engines and vehicles. Leveraging a capital efficient business model to develop and commercialize natural gas engines in key vertical markets, Westport has grown substantially in revenue and stature.

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Westport Corporate Overview

  1. 1. May 4, 2016 1 WESTPORT INNOVATIONS CORPORATE OVERVIEW stock symbols market capitalization TSX NASDAQ CAD USD WPT WPRT ~$170M ~$140M
  2. 2. » This presentation contains forward-looking statements, including statements regarding the anticipated timing for and ultimate completion of the merger, result, timing and financial metrics associated with Westport's and Fuel Systems' combined operating business units and consolidated business, revenue and cash usage expectations, the effect of the proposed reorganization and restructuring of our business, continued research and development investment, future of our development programs, timing for launch, delivery and completion of milestones related to the products referenced herein, Westport's and Fuel Systems’ expected actions and results relating to the key components of its strategy in 2016 and to the integration of Westport’s and Fuel Systems’ businesses, future sales of assets and the benefits therefrom, the demand for our products, the future success of our business and technology strategies, investment in new product and technology development and otherwise, cash and capital requirements, intentions of partners and potential customers, the performance and competitiveness of Westport's and Fuel Systems’ products and expansion of product coverage, future market opportunities, speed of adoption of natural gas for transportation and terms and timing of future agreements as well as the combined company’s management's response to any of the aforementioned factors. These statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties and are based on both the views of management and assumptions that may cause our actual results, levels of activity, performance or achievements and ability to complete the proposed merger to be materially different from any future results, levels of activities, performance or achievements expressed in or implied by these forward looking statements. These risks and uncertainties include risks and assumptions related to our revenue growth, operating results, industry and products, the general economy, conditions of and access to the capital and debt markets, governmental policies, regulation and approvals, technology innovations, fluctuations in foreign exchange rates, operating expenses, the availability and price of natural gas, global government stimulus packages, the acceptance of and shift to natural gas vehicles, the relaxation or waiver of fuel emission standards, the inability of fleets to access capital or government funding to purchase natural gas vehicles, the development of competing technologies, our ability to adequately develop and deploy our technology, the actions and determinations of our joint venture and development partners, as well as other risk factors and assumptions that may affect our actual results, performance or achievements or financial position discussed in Westport’s most recent Annual Report on Form 40-F for the year ended December 31, 2015, as amended and Fuel System’s Annual Report on Form 10-K for the year ended December 31, 2015, and other filings made by the companies with securities regulators. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they were made. We disclaim any obligation to publicly update or revise such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in these forward looking statements except as required by National Instrument 51-102. The contents of any website, RSS feed or twitter account referenced in this presentation are not incorporated by reference herein. » This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the United States Securities Act of 1933, as amended. Subject to certain exceptions to be approved by the relevant regulators or certain facts to be ascertained, the public offer will not be made directly or indirectly, in or into any jurisdiction where to do so would constitute a violation of the laws of such jurisdiction, or by use of the mails or by any means or instrumentality (including without limitation, facsimile transmission, telephone and the internet) of interstate or foreign commerce, or any facility of a national securities exchange, of any such jurisdiction. 2 Cautionary Note Regarding Forward Looking Statements
  3. 3. Non-GAAP Financial Measures » This communication may contain certain non-GAAP financial measures, which management believes are useful to investors and others in evaluating business combinations. Further detail and reconciliations between the non-GAAP financial measures and the GAAP financial measures are available in the most recent press releases of Westport and Fuel Systems Solutions concerning quarterly financial results, filed with the SEC on Form 6-K. Additional Information and Where to Find it » Westport will file with the SEC a registration statement on Form F-4, which will include the proxy statement of Fuel Systems that also constitutes a prospectus (the “proxy statement/prospectus”). INVESTORS AND SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS, AND OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, IN THEIR ENTIRETY CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT WESTPORT, FUEL SYSTEMS, THE PROPOSED TRANSACTIONS AND RELATED MATTERS. Investors and shareholders will be able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by the parties through the website maintained by the SEC at www.sec.gov. In addition, investors and shareholders will be able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by the parties by contacting Westport Investor Relations at +1 604-718-2046 or invest@westport.com (for documents filed with the SEC by Westport) or Fuel Systems Investor Relations advisors, LHA, at 1-415-433-3777 or fuel@lhai.com (for documents filed with the SEC by Fuel Systems). Participants in the Solicitation » Westport, Fuel Systems and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Fuel Systems in respect of the proposed transactions contemplated by the proxy statement/prospectus. Information regarding the persons who are, under the rules of the SEC, participants in the solicitation of the shareholders of Fuel Systems in connection with the proposed transactions, including a description of their direct or indirect interests, by security holdings or otherwise, will be set forth in the proxy statement/prospectus when it is filed with the SEC. Information regarding Westport’s directors and executive officers is contained in Westport’s Annual Report on Form 40-F for the year ended December 31, 2015, as amended, and its Management Information Circular, dated March 11, 2015, which is filed with, in the case of the Annual Report on Form 40-F, and furnished to, in the case of the Management Information Circular, the SEC and can be obtained free of charge from the sources indicated above. Information regarding Fuel System’s directors and executive officers is contained in Fuel System’s Annual Report on Form 10-K for the year ended December 31, 2015 and its Proxy Statement on Schedule 14A, dated April 14, 2015, each of which are filed with the SEC and can be obtained free of charge from the sources indicated above. 3 Important Additional Information
  4. 4. 4 Company Overview We are a leading, global provider of high- performance, engine and fuel system technologies utilizing gaseous fuels. BY THE NUMBERS: » Via JV’s, largest participant in medium & heavy-duty market » Customers in more than 60 countries » Over $621.2M in total segments YTD revenue Cummins Westport Inc. (Joint Venture 50:50)  $331.9M in YTD Revenue  More than 60,000 CWI engines sold worldwide  Formed in 2001; term until 2022 Weichai Westport Inc. (Joint Venture 40:35:25)  $186.0M in YTD Revenue  More than 130,000 WWI engines sold worldwide  Westport maintains a 35% equity interest Westport Operations  $103.3M in YTD Revenue  Design, manufacture and sell natural gas components & vehicle systems to 20+ global OEMs in 60+ countries  Good margins; transition plan driving toward profitable growth Corporate & Technology Investments  Filed over 470 patents in CNG/LNG/LPG components and systems worldwide  Historically strongest commitment to R&D with $945.5M cumulative investment  Major product release HPDI 2.0 scheduled for 2016
  5. 5. » Natural gas will continue to grow rapidly and establish 20%+ global share of fleet vehicles » We are and will continue to be the OEM go-to technology source for alt- fuel technology, systems solutions and critical component supply » 2015–2018 complete and launch Westport™ HPDI 2.0 products with multiple partners in the heavy-duty sector » With key supplier and partner relationships, establish scalable and profitable growth as the market matures » Commitment to profitability as company pivots towards next generation markets with a capital-light business model 5 Westport’s Vision
  6. 6. » Despite volatile energy markets, natural gas and propane remain a cleaner, cheaper, and widely available alternative to oil based fuels, and the OEMs are integrating into their global product line » Market pressures and the transition to OEM requirements are encouraging industry consolidation. Westport and Fuel Systems Solutions have announced a compelling merger to create a premier alternative fuel vehicle and engine company » Focused portfolio of next generation products hitting the market over the next three years 6 Investment Highlights
  7. 7. 7 Financial Summary: From R&D to Profit ($ in millions) CY2013 CY2014 CY2015 Westport Revenue $ 164.0 $ 130.6 $103.3 CWI Revenue 310.7 337.2 $331.9 WWI Revenue 466.6 618.5 $186.0 Total Segments Revenue $ 941.3 $ 1,086.3 $621.2 ADJUSTED EBITDA Operating Business Units (34.6) (17.7) (5.2) Corporate & Technology Investments* (75.7) (80.4) (52.1) Westport’s Share of Income from the JVs 13.4 14.2 18.3 Total (96.9) (83.9) (39.0) Multi-year investments with global OEMs *Corporate & Technology Investments segment operating income excluding stock-based compensation and non-cash adjustments
  8. 8. APPLICATIO N SEGMENTS 1. Selected Competitors 2. Represents energy segment revenues 3. Represents total revenues 4. Represents 2013 revenues 5. PF for Power Integration acquisition Note: Foreign figures translated into USD at the exchange rate as of FYE 8 Component Industry Overview: Strong Existing Revenue Base 469.7 388.0 339.1 282.2 255.6 220.2 130.6 85.9 47.5 41.2 34.1 30.9 27.3 22.2 12.6 10.5 7.5 917.2 Clean Diesel Tech. Landi Renzo Enovation Controls4 Hexagon Westport Nikki Co. Agility Tartarini Auto Spa Quantum Tech. Ventrex4 Zenith FS Clean Air Power Woodward2 Romano4 Rotarex3,4Fuel Systems FSYS + WPRT PSI5 Industrial P P P P P P P HD / MD automotive P P P P P P P P P LD automotive P P P P P P P P P P P CNG compression P P P Fuel storage P P P P 2014Revenue($M) 1
  9. 9. What Happened » Since their recent peak in June 2014, crude oil prices have dropped by more than 50% driven by: 1. Booming shale-oil production in the U.S. 2. OPEC’s (Saudi Arabia’s) decision in November 2014 not to cut production to boost prices 3. Record or near-record production from several major producers 4. Pending supply from Iran 5. Weak global demand growth 9 Fuel Prices – What’s Going On?
  10. 10. source: EIA.gov Nov 10, 2014 and 2015 *1 boe = 5.55MMBtu ** DGE = diesel gallon equivalent 10 NA Commodity Pricing: Energy Equivalent Basis Commodity Nov 10, 2014 Nov 10, 2015 Price / Unit Price / MMBtu* Price / Unit Price / MMBtu Crude Oil (West Texas) $75.91/ barrel $13.67 $44.23 / barrel $7.97 Crude Oil (Brent) $ 82.90/ barrel $14.93 $46.44/ barrel $8.37 Natural Gas (Nymex) $4.18/ MMBtu $4.18 $2.14/ MMBtu $2.14 Commodity 2014 2015 Price / Unit Price / DGE* Price / Unit Price / DGE** Natural Gas (Nymex) $4.18/ MMBtu $0.52 $2.14 / MMBtu $0.27 At the pipeline, natural gas costs 72% and 74% less than oil in 2014 and 2015 respectively -42% -44% -49% -49%
  12. 12. JV BACKGROUND » Westport has a 50% ownership interest in Cummins Westport » Engines designed and developed by the JV; manufactured and sold by Cummins » Potential to earn more than 50% of the income based on meeting certain sales thresholds 12 Cummins Westport: Continued Market Strength in 2015 (millions of USD except units) 2013 2014 2015 Engines sold 10,314 10,512 9940 Revenue $ 310.7 $ 337.2 $331.9 Gross margin (GM) % 20.7%* 19.7%* 31.3% Operating expenses 40.7 44.8 53.7 Segment operating income(1) 23.5 21.6 50.2 Westport’s 50% interest 9.4 8.1 17.1 Capital expenditures 0.4 0.5 0.2 LATEST NEWS » SOLID CUSTOMER BASE » Transit and refuse volume has averaged ~50% in the last three years » The 400HP ISX12 G was launched in August 2013 and since then truck volume has averaged ~34% » International volume has averaged ~24% in the last three years » New 6.7-litre engine announced, availability 2016 1. Gross margin less operating expenses *GM impacted by warranty adjustments
  13. 13. JV BACKGROUND » Weichai Westport JV commenced July 2010 » Westport has 35% interest (Weichai 40%, third investor 25%) » JV represents beach head creating NG market in China for other product introductions from Westport while participating in JV’s profitability 13 Weichai Westport: Large Opportunity in China; Current Turbulence (millions of USD except units) 2012 2013 2014 2015 Engines sold 22,025 38,138 51,006 15,956 Revenue $ 272.1 $ 466.6 $ 618.5 $106.0 Gross margin % 9.1 % 8.0 % 8.5 % 11.5% Operating expenses 15.0 22.8 32.2 17.6 Segment operating income 9.8 14.5 20.3 3.8 Westport 35% interest 2.9 4.3 6.0 1.0 LATEST NEWS » Slowdown in China’s economy and shrinking oil vs natural gas price spread affected sales in overall truck market CURRENT PRIORITIES » Launch Westport HPDI technology in China » Sale of components to JV and other vehicle OEMs » Expand product offerings with “next generation” technology
  14. 14. *As at Dec 31, 2015 Source: CATARC, Westport Analysis 14 Gas Already Captured Share of China Truck & Bus Market* Diesel 97% Gas 3% Weichai Westport Truck Engine Diesel 92% Gas 8% Weichai Westport Bus Engine WWI engines (9-13L) have ~8% share of (9-13L) bus engine sales in 2015. WWI engines (10-13L) have ~3% share of 275,000 (10-13L ) truck engine sales in 2015.
  15. 15. 15 Cumulative Truck & Bus Engine Shipments 0 50,000 100,000 150,000 200,000 250,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Weichai Westport Cummins Westport
  16. 16. Weichai (10-12L) 28% Cummins (9-15L) 12% Daimler (11-16L) 11% Volvo (11-18L) 10% MAN & Scania (10.5-16L) 9% Dongfeng Chaoyang (11L) 8%Hangzhou Auto (10-10.5L) 7% PACCAR (11-13L) 5% Other (9-13L) 10% Average 2016 –2019 Volume Projection Engines >9L Total 1.03M units/year The Market Needs Westport™ HPDI » Global segment for natural gas trucks represents over 5% of the HD market and is dominated by spark ignited (SI) Engines (Weichai & CWI) » Efficiency improvements with HPDI over SI have multiple OEMs engaged in development with Westport » First OEM products hitting the market in 2017 with other OEMs following up 16 NA / West Europe / China Heavy-Duty Engine Market Source: Power Systems Research, average 2016-19 volume projection, class 6,7,8. Engines >9L
  17. 17. PROPOSED MERGER WITH FSYS » September 1, 2015 – Westport Announces Intention to Merge with Fuel Systems Solutions (FSYS) in a share for share deal at ratio 64:36 relative ownership (2.129 WPRT shares per FSYS share*) 17* Contingent on the Nasdaq volume weighted average price of Westport common shares during a specified measuring period ("VWAP") being equal to or greater than $2.37
  18. 18. Strategic Rationale » Creates a premier alternative fuel vehicle and engine company with operations in more than 70 countries » Complementary technologies and expertise create an expanded product and technology portfolio » Combined company to possess scale and positioning to compete effectively, grow, and deliver strong shareholder returns as markets improve » Unanimously approved by both boards of directors 1. Based on closing prices as of August 31, 2015. 2. Contingent on the Nasdaq volume weighted average price of Westport common shares during a specified measuring period ("VWAP") being equal to or greater than $2.37 18 Transaction Overview Structure Stock for stock transaction resulting in market value of $351 million1 Consideration • FSYS shareholders will receive 2.129 WPRT shares for each share of FSYS common stock they own at closing2 • 10.0% premium to implied current exchange ratio and 23.9% premium on implied exchange ratio over the last 30 days VWAP as of August 31, 2015 Pro forma ownership following closing • Existing Westport shareholders will hold ~64% of combined company • Existing Fuel Systems shareholders will hold ~36% of combined company Synergies and accretion • Estimated annual pre-tax savings and merger synergies of $30 million fully-realized by 2018 • Expected to be accretive to Westport earnings in 2016 Governance • Combined company will be headquartered in Vancouver, Canada • Selected by Fuel Systems, Mariano Costamagna, and with two directors to be confirmed, will be nominated for addition to the combined company’s Board of Directors Management • Mr. David Demers and Westport executive team will lead the combined company. • Mr. Mariano Costamagna will serve in a senior advisory position of the company's new business unit with additional titles in the organization to be determined at a later date Timing and closing conditions • So far, shareholders owning 34% of FSYS and 15% of WPRT outstanding shares have agreed to vote their shares in favor of the merger • Subject to both companies’ shareholder approvals, regulatory approvals and customary closing conditions • Expected to close in Q1 2016
  19. 19. » The combined company will have a broad global reach, and will be able to serve the world’s largest and fastest growing markets through a fortified geographic footprint, greater product diversity, and a leading distribution network spanning 70 countries. 19 Increased Scale and Opportunity to Better Serve Customers 2 2 3
  20. 20. » The merger combines a variety of leading brands in the automotive and industrial space. 20 Company & Product Brands FUEL SYSTEMS SOLUTIONS WESTPORT
  21. 21. » The customer bases and communities will be served with an outstanding asset base and state-of-the-art facilities strategically located across five continents. * not all customers listed 21 Complementary Customer Bases FUEL SYSTEMS SOLUTIONS* WESTPORT*
  22. 22. » Both companies have a long history of technology innovation and engineering capabilities, which have garnered the interest and demand from global vehicle and engine OEMs. » The combined company will have filed over 600 patents in CNG/LNG/LPG components and systems worldwide. This combination of a strong intellectual property position, and prolific development and commercialization efforts will help expand the product pipeline for the industry. 22 Premier Technology Position * As of April 7, 2016 and based on the patent search results of publicly available data within the International Patent Classification F02, meeting the search term criteria: one of ("engine" or "combustion" or "injector" or "injection valve") and ("natural gas" or "methane" or "gaseous fuel") and in the claims, not ("fuel cell" or "turbine"). This chart includes issued or granted patents from: Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, China, Czech Republic, Denmark, Eurasian Patent Organization Grants, European Patent Office Grants, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, India, Ireland, Italy, Japan, Latvia, Lithuania, Malaysia, Mexico, Moldova, Monaco, Morocco, Netherlands, Norway, OAPI grants, Philippines, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Turkey, UK, Ukraine, USA, USSR, Yugoslavia, and pending published patent applications from: Canada, China, the European Patent Office, USA, and the World Intellectual Property Office. 117 132 158 163 163 170 301 319 496 600+ Mazda Continental Denso Bosch Porsche GE Ford Toyota Caterpillar FSYS + Westport Top 10 Companies with Natural Gas Engine Related Patents*
  23. 23. For Westport » Two companies, both rich in technology innovation and with proven track records of manufacturing, production and sales, will provide greater breadth of alternative fuel systems solutions as products and development engineering to OEM partners globally. » Combined company’s product offerings will span a more comprehensive array of natural gas solutions. » We expect that the increased scale of products and consolidation of facilities will produce both cost- efficiencies and enhanced products. » Combination of a strong intellectual property position, prolific development and commercialization efforts will help expand the product pipeline for the industry. » This transaction marks a milestone in our strategic plans, whereby Westport will realize increased sales and significant cost efficiency opportunities while continuing to focus on the development, validation and launch of its proprietary HPDI 2.0 and enhanced spark ignition technology. » Approximately $30 million per year of expected annual pre-tax savings and merger synergies fully realized by calendar year 2018 23 A Compelling Merger
  25. 25. 25 Westport™ HPDI 2.0 Truck Components Proprietary Design & Engineering - Capital Light Manufacturing Hydraulic Pump (in engine bay) Engine Engineering Cryogenic Systems Integrated Gas Module (on chassis) Proprietary Tank Control S/W Tank Selection Control Manifold (on chassis) LNG Tank Modules: T6 (with P20 pump) T5 (on chassis) Fuel Level Signal CANditioner (on LNG tank) For a complete description on Westport HPDI 2.0 visit: www.westport.com/news/2013/next-generation-high-pressure-direct-injection-system-hpdi-2.0 LNG Pump Control Manifold (on LNG tank) OEM Engine • HPDI 2.0 Injectors • Diesel & Gas Control Modules Gas Temperature Sensor (on LNG tank)
  26. 26. 26 Delphi Partnership: New HPDI Injector Architecture HPDI v1.5 (2012-2014) HPDI v2.0 (2015 +) • Lower cost • Higher performance • Higher reliability / durability
  27. 27. KEY FEATURES » Next generation spark ignited engine architecture » Designed to provide:  up to 10% improvement in power and torque over the base diesel engine  up to 40% brake thermal efficiency  up to 5% weight reduction compared to the base diesel engine  Much higher fuel economy compared to current SI engines » Stoichiometric operation and simple three-way catalyst after-treatment » Using 100% natural gas; CNG or LNG capability 27 Westport ESI: Enhanced Spark Ignited System
  29. 29. » Cash used in operations excluding changes in working capital 29 Core Cash Burn Rate -$50 -$45 -$40 -$35 -$30 -$25 -$20 -$15 -$10 -$5 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 millions AVERAGE 2013 2014 With the oil shock in Q3/Q4 2014, Westport took immediate actions to right-size the business through staff reductions and deferral of non-core programs while maintaining critical OEM development commitments 2015
  30. 30. $(30.0) $(25.0) $(20.0) $(15.0) $(10.0) $(5.0) - $0 $10 $20 $30 $40 $50 $60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 AEBITDA(millions) WestportOperationsRevenue (millions) Revenue Consolidated AEBITDA 30 Revenue & AEBITDA Performance 2013 2014 » Westport is focused on Adjusted EBITDA improvement through contributions from:  Westport’s operating business units  Share of net income from the joint ventures  Funding from development partners  Prioritization of investment programs 2015
  31. 31. » Consolidated AEBITDA: Steady progress  Despite headwinds, balancing current sales and expenses while maintaining technology development commitments with OEMs  CWI returns to strong contribution with good outlook 2016-2020  Target remains consolidated AEBITDA breakeven by mid-2016  Strong potential synergies for increased sales/reduced overhead with FSYS merger (expect ~$30 million in annual pre-tax savings and merger synergies) » Vigilant cash management  Expect total 2015 operating cash use less than 60% of 2014  Expect sale of non-core assets to add cash flexibility  Strengthened balance sheet post-merger » Proactively managing operational profitability through:  Consolidation of facilities; efficiency and focus  Profitability focus at each product line; sell more of what is selling  Fast response to opportunities 31 Financial Outlook: The Path to Profitability
  32. 32. Strong First-Mover Advantage Valuable Strategic & Business Alliances Capital Efficient & Scalable Business Model Talented & Experienced Management Team 32 westport.com » Pure-play global leader for natural gas as a transportation fuel