INVESTOR RELATIONS Institutional Presentation BTG Pactual XV Brasil CEO Conference February, 2014 0 INVESTOR RELATIONS TUPY AT A GLANCE Automotive (92%) Iron Engine Blocks and Heads | Engineered Parts | Machining Product Portfolio 4Q13 Revenue Breakdown Where can you find Tupy’s Products? Iron Engine Blocks and Heads Engine Head Other Auto-parts Scania Trucks Exhaust Manifold Pipe Fittings Iron Bars and Steel Shots Ford F-Series Engine Block Auto Parts Flywheel Crankshaft Bearing Cap 8% 12% Caterpillar RM-500 This list does not include all of Tupy’s products Hydraulics ( 8%) Pipe fittings | Iron bars and shots 80% Transportation of liquids and gases for commercial and industrial use (i.e. construction, irrigation and water treatment) Pipe fittings Iron bars and steel shots Blocks and Heads Shots and grits are used as process materials to feed marble/granite cutting machines and (blast machines for surface cleaning) Continuous cast iron bars are used as raw material for the manufacturing of several industrial products 1 INVESTOR RELATIONS TUPY BY APPLICATION Automotive (~92%) Industrial Off-road % as of revenues 4Q13 ~25% Hydraulics (~8%) Light Commercial Vehicles Passenger Cars ~45% ~22% Hydraulic systems ~8% Key customers +3,000 resellers Among others Among others Among others 2 INVESTOR RELATIONS INVESTMENT HIGHLIGHTS 1 Leadership Position Largest producer of iron engine blocks and heads with manufacturing flexibility Dominant position with a market share of 24% in the Western Hemisphere 308 Ktons, equivalent to a 2 The Importance of Mexican Acquisitions Internationalization and increased exposure to global off-road market 57% increase to production capacity More than 3 Diversification of Markets Exposure to different product lines and geographies reduce demand’s volatility 65% of Tupy’s revenues sold outside Brazil 4 Industry Momentum Favorable industry drivers in the US markets 5 Technology and Long Standing Relationships Recognized as a technology leader for the latest engine generation (light weight – thin wall, complex geometry, high resistance materials) 11% increase in USA truck sales in 2013 +20 years of commercial relationships with selected clients 3 1 LEADERSHIP POSITION | MARKET SHARE AND PRODUCTION CAPACITY Market Largeshare scale- production Iron blocks capacity and heads ¹ Market share - Iron blocks and heads ¹ Ramos Arizpe Capacity : Area: Employees: INVESTOR RELATIONS 24% Tupy 92 kton/year 358,000 m² 784 Saltillo Capacity: 216 kton/year Area: 223,000 m² Employees: 2,795 Teksid Company A Fritz Winter Company B Central Foundry Company C Bruhl Company D Manufacturing Flexibility Mauá/SP Capacity: Area: Employees: 100 kton/year 100,000 m² 1,202 Ability to serve different markets (heavy, off road and light vehicles) Parts ranging from 1kg to 500kg Several cast iron grades (CGI, ductile, grey and malleable) Delivery of pre or fully machined parts Joinville/SC Headquarters Capacity: Area: Employees: 1) According to Company’s estimates; Americas and Europe 440 kton/year 1,208,000 m² 7,516 4 2 INVESTOR RELATIONS THE IMPORTANCE OF MEXICAN ACQUISITIONS Transaction Summary & Rationale Capacity [kton] Blocks & Heads Rationale 848 ‐ Manufacturing internationalization ‐ Increased 540 presence in the off-road segment 308 610 302 Expected synergies 238 ‐ Capacity optimization ‐ Supply Chain ‐ Operational best practices B&H Pro forma Revenues 2012 [R$ mm] 238 Brazil Mexico Tupy 56% 100% 72% Pro forma EBITDA 2012 [R$ mm] 2.912 2.042 Brazil % total 70% Others 397 870 Mexico Tupy 30% 100% 1) Excluding acquired companies’ cash of US$56.2 million 2) 2012 capacity, including 70kton brownfield in Joinville Margin 290 107 Brazil Mexico Tupy 14% 12% 14% 5 3 INVESTOR RELATIONS DIVERSIFICATION OF MARKETS Revenue Diversification by Geography as of 4Q13¹ Other Europe 5% 13% Peer Revenue Exposure to Exports¹ Exports / Net Revenues (2013) Brazil 30% 67% 3 60% North America 53% 3 55% Geographic mix equilibrium Indirect exports: other markets where Tupy has low direct exposure 3 35% 8% 23 Uniquely positioned to benefit from the Real depreciation 1) Companies’ Financial Statements; 2) Exports / Gross Revenues 3) 9M13 data 6 4 INVESTOR RELATIONS INDUSTRY MOMENTUM: UPSIDE SUPPORTED BY FAVORABLE TRENDS Positioned to benefit from the outsourcing trend Foundries outsourcing trend Outsourcing trend in progress (foundry and machining) Tupy’s reliability and execution capacity position the company to benefit from this trend % iron B&H capacity by foundry type¹ Independent 41% 56% 77% 77% 59% Captive 23% 44% 23% 1999 2013 Strong growth perspectives in machining operations Participation of machined products Higher value added product: potential for increasing margins 12% % machining of 2013 total sales volume Logistical opportunities Enhanced commercial relations: client loyalty Machining Leading partner to support engine downsizing trend World’s largest producer of CGI engine blocks New emissions regulation require enhanced engineering knowledge Compacted Graphite Iron, thin-wall designs and engine downsizing are innovative responses to the industry challenges 27% % of CGI sales volume as of total B&H sales volume Brazil Mexico 17% 1% 2013 7% 2017E Strategically positioned to benefit from industry trends 1) According to Company’s estimates; Americas and Europe 7 5 INVESTOR RELATIONS TECHNOLOGY AND LONGSTANDING RELATIONSHIPS Geometrical Innovation – Leading the Metallurgical Development Recognized as a technology leader for the latest engine Excellence in developing new casting processes Tupy’s is the world’s leading producer of B&H using CGI generation (Light weight – thin wall, complex geometry, high resistance materials) technology Experienced technical team: Highly qualified manpower working close to the customer (more than 2,000 Longstanding relationships (years) engineers and technicians) Light-Weight Design and Thinner Wall 55 Light-Weight Design 3.0mm Traditional Concept 31 3.0mm 29 3.5mm 4.5mm 4.5mm 26 Downsizing process through technical development leading to lighter and more efficient engines 16 8 INVESTOR RELATIONS FINANCIALS INVESTOR RELATIONS REVENUES Revenues [R$ mm] Destination 4Q13 [% revenues] +17% 13% Europe 5% Other 30% Brazil 3,123 Growth 4Q12 vs. 4Q13 2,671 53% 20.0% Domestic mkt: 6.8% Foreign mkt: 26.6% Consolidated: NAFTA Application 4Q13 [% revenues] 747 551 528 746 650 702 797 843 8% Hydraulics 780 25% 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 Construction, Agricultural & Mining 22% Light Vehicles 45% Commercial Vehicles 10 INVESTOR RELATIONS DOMESTIC AUTOMOTIVE MARKET Light Vehicles Commercial Vehicles 11.6% of revenues 10.4% of revenues 90.3 Construction, Agricultural & Mining 2.1% of revenues 90.2 81.2 68.5 4Q12 4Q13 Growth 10.1% 4Q12 4Q13 Growth 31.6% 16.3 16.6 4Q12 4Q13 Growth 1.5% 11 INVESTOR RELATIONS FOREIGN AUTOMOTIVE MARKET Light Vehicles Commercial Vehicles Construction, Agricultural & Mining 33.1% of revenues 11.9% of revenues 22.6% of revenues 258.5 176.2 202.6 135.8 92.9 79.4 4Q12 4Q13 Growth 17.0% 4Q12 4Q13 Growth 27.6% 4Q12 4Q13 Growth 29.7% 12 INVESTOR RELATIONS HYDRAULICS Domestic and foreign markets Domestic market Foreign market 5.7% of revenues 2.6% of revenues 44.6 42.6 20.3 14.9 4Q12 4Q13 Growth 4.8% 4Q12 4Q13 Growth 36.2% 13 INVESTOR RELATIONS COSTS OF GOODS SOLD AND SG&A COGS 4Q12 [%] COGS 4Q13 [%] Materials Labour Electricity Depreciation 12% 13% Other 6% 6% 7% 5% 55% 56% 20% Gross Margin SG&A 20% 550.7 M BRL +18% 647.8 M BRL 15.7 % +1.3pp 17.0 % 50.9 M BRL +11% 56.3 M BRL 14 INVESTOR RELATIONS ADJUSTED EBITDA Adjusted EBITDA [R$ mm] and EBITDA margin [%] Growth quarter vs. quarter YTD 18.9% 15.0% 14.6% 13.6% 14.5% 14.3% 12.5% 13.7% 14.7% 13.8% 15.7% +33% 490 369 Reconciliation Net income/EBITDA Consolidated [R$ mm] Net income for the quarter Net financial result Income tax and social contribution D&A EBITDA (accordingly to CVM Instruction 527/12) EBITDA margin Other operating revenues (expenses), net +41% 159 80 108 72 107 81 96 119 Adjusted EBITDA 115 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Adjusted EBITDA margin 2012 4Q13 16.1 27.1 4.8 54.4 102.5 13.1% 12.6 115.0 14.7% 2013 15 INVESTOR RELATIONS CAPITAL MARKETS INVESTOR RELATIONS PRIMARY OFFERING – USE OF PROCEEDS Financial impact Primary offering of 29.9 mm stocks @ R$17.50, resulting in R$ 516.7 mm in net proceeds 1 Use of Offering Proceeds % of Total Primary Offering(1) Operational optimization projects: COGS reduction 71.3% Finishing process automation + Sand regeneration + Other cost reduction projects 100% 2 Expansion Projects and groundwork for other opportunities, aligned with Tupy’s main strategic guidelines 28.7% COGS Reduction Expansion, deleveraging and other opportunities Total Primary Offering 1) Net of fees and expenses 17 INVESTOR RELATIONS BALANCE SHEET STRUCTURE POST-OFFERING Cash and cash equivalents Net Debt and Net Debt/Adjusted EBITDA 2.7 2x increase 1.4 1,219.6 1,123.4 Net debt / Adj. EBITDA 664.6 529.7 3Q13 4Q13 3Q13 Debt [R$ mm] 4Q13 Debt by currency structure [% total debt] 1,803 42% 1,139 58% 1,581 665 223 ST debt Domestic currency LT debt Total debt Cash and cash equivalents Net Debt Foreign currencies Cost of debt: 5.4% + FX effect p.a. 18 INVESTOR RELATIONS CHANGE IN STOCKHOLDER STRUCTURE Pre-Offering (July 2013) Post Offering Free Float Free Float 9.8% 5.8% 28.2% 35.6% 43.6% 13.2% 28.2% 35.6% Controlling shareholders The public offering increased the free float from 9.8% to 43.6% 19 INVESTOR RELATIONS THANK YOU
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