zweite ebene foundry industry 2020: trends and challenges...düsseldorf, 23rd april 2015 1 grün =...

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Version 1.32

21.11.2014

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[Text] 1. Hervorhebung von

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Zelle/Spalte/Zeile

2010 2011 2012 2013E

NRW 1.234,00 1.234,00 1.234,00 1.234,00

Hessen 1.234,00 1.234,00 1.234,00 1.234,00

Bayern 1.234,00 1.234,00 1.234,00 1.234,00

Baden-

Württemberg 1.234,00 1.234,00 1.234,00 1.234,00

Sachsen 1.234,00 1.234,00 1.234,00 1.234,00

Niedersachsen 1.234,00 1.234,00 1.234,00 1.234,00

Rheinland-Pfalz 1.234,00 1.234,00 1.234,00 1.234,00

Thüringen 1.234,00 1.234,00 1.234,00 1.234,00

Berlin-

Brandenburg 1.234,00 1.234,00 1.234,00 1.234,00

Gesamt 1.234,00 1.234,00 1.234,00 1.234,00

1 Kapitel 1

2 Kapitel 2

3 Kapitel 3

4 Kapitel 4

5 Kapitel 5

6 Kapitel 6

7 Kapitel 7

8 Kapitel 8

1 Kapitel 1

2 Kapitel 2

3 Kapitel 3

4 Kapitel 4

5 Kapitel 5

6 Kapitel 6

7 Kapitel 7

8 Kapitel 8

Foundry Industry 2020: Trends and Challenges

Düsseldorf, 23rd April 2015

1

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Agenda 2

1 Economic environment of the global foundry industry

2 Casting production: Growth in eastern markets

3 Differences in earnings

Appendix


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World Economy 2030: China moves ahead, India catches up with EU and US

Source: E.I.U.

Population in million

3

GDP in PPP in prices of 2005 in bn US-$

0 10 20 30 40

Russia

Brazil

USA

EU28

India

China

2014 Forecast 2030

0 500 1000 1500

Russia

Brazil

USA

EU28

India

China

2014 Forecast 2030


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Eurozone: Improvement amid positive general conditions

Real GDP growth in %, qoq Real GDP growth in %, qoq

In detail

Sources: Eurostat, IKB research (seasonally adjusted )

4

We see signs of a further stabilization in the eurozone. The

growth rate was significantly higher in the fourth quarter of

2014 and GDP improvement could be observed in most

countries. Only Italy (0.0 %) and France (0.1 %) lagged

behind

Therefore, IKB forecasts GDP growth of 1.3 % for the

eurozone in total

The depreciation of the Euro, lower oil prices and low interest

rates should stimulate growth in the eurozone going forward

-1,2

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-0,4

0,0

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1,6

2,0

2011Q1 2012Q1 2013Q1 2014Q1

-1,2 -1,0 -0,8 -0,6 -0,4 -0,2 0,0 0,2 0,4 0,6 0,8 1,0 1,2

Cyprus

Finland

Greece

Italy

France

Belgium

Austria

Netherlands

Portugal

Slovakia

Germany

Spain

Estonia

4. Q. 2014 3. Q. 2014

Euro-Zone:Q3: +0.2 %Q4: + 0.3%


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Light vehicles: China dominates while production in Japan/ Korea declines

Global light vehicle production (in million)

Source: IHS

5

The German car manufacturers are expected to gain market share during the recovery of the Western European automotive industry

The positive development in North America results from growing production in Mexico and investments of foreign OEMs in the US

South Asia and Japan/ Korea lose production volumes to China

2022

2020

2018

2014

2013

North America Europe China

Japan/ Korea

South Asia Middle East/ Africa

South America

16.2 17.0 18.6 18.9 19.0 19.5 20.1 22.1 22.5 22.9

21.3 23.0

28.8 30.8 32.5

13.5 13.7 12.4 12.1 12.2

8.2 7.8 10.7 12.0 13.2 1.6 1.9 2.3 2.4 2.5

4.5 3.8 4.4 4.8 5.2


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Changing light vehicle material mix 6

Increasing requirements for energy efficiency

and stronger emission regulations will support

the trend towards lightweight production in the

upcoming two decades

The biggest loser concerning the change of

material application is conventional steel. In

the future, only about one fifth of the total

materials used will be conventional steel.

Another fifth will be accounted for by high-

tensile steel

The light metals aluminum and magnesium

will significantly gain in importance

Another fifth will be made up by plastics and

composites, of which however only a small

share is attributable to carbon fibers, mainly

used in luxury class

0

10

20

30

40

50

60

70

80

1975 2012 2035

Material split in light vehicles; in % In detail

Source: VDI


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Emission regulations stimulate demand for trucks

Global truck production (in thousand)

Source: IHS

7

Regulations of the European Union and the US target reduced fuel consumption and lower emissions

This leads to investments in the modernization of truck fleets

465 542 581 578 602

North America

2021

2018

2016

2014

2013

588 553 624 764

863

Europe

1,225 1,167 1,141 1,234 1,234

China

388 393 403 395 408

Japan/ Korea

422 439 593

718 815

South Asia

3 3 4 4 4

Middle East/ Africa

258 195 217 240 271

South America


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Mechanical engineering: Recovery in Europe, growth in Asia

Global mechanical engineering revenues (in €bn)

Sources: VDMA, IKB forecast

8

Globally, we expect a strong increase in demand for mechanical engineering products

In 2016, revenues of China will surpass the sum of both North America and rest of Asia taken together

In Europe, Germany and Italy gain market shares to the detriment of other Western European countries

As in the automotive industry, trends towards lightweighting and higher flexibility in robotics & machine tools increase the use of aluminum

352 369 395 413 421

North America

2020

2018

2016

2014

2013

692 699 728 756 773

Europe

766 835 860 903 921

China

349 439 464 469 479

Rest of Asia

66 68 71 71 72

Rest of the world


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9

Construction sector: Improvement in the US, China still strong

Global construction & engineering industry; in US-$ bn

Total construction volume in selected countries; in €m

Boom through urbanization

Sources: ifo; MARKETLINE; Worldbank

The US construction industry is expected to see a strong increase

in construction starts

Today, more than half of the Chinese population lives in rural

areas. Further migratory movements into urban regions are

expected during the next ten years

The construction sector in the European Union is also likely to

revitalize. Eastern European EU members are likely to show

significantly higher growth compared to Western European

countries. Even the Spanish construction industry seems to show a

slight recovery after years of significant decline

0

1000

2000

3000

4000

5000

2012 2013 2014 2015 2015 2017

Urban population share; in %

0

20

40

60

80

100

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

China Japan Korea Germany UK


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Agenda 10




Appendix


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Iron and steel cast: Asia outgrows general market

Global grey iron, ductile iron and steel cast production (in million tons)

11

Production in Western Europe mostly stable with relative market share gains in Germany

NAFTA states profit from the re-industrialization due to lower energy costs, inducing significant growth especially in Mexico

China´s market share grows further, India catches up, Japan and Korea lose casting production to these countries

1) Includes Australia

Sources: World Census, CAEF, IKB

34.8 37.0 38.0 40.0 42.5 45.0

15.3 15.5 15.8 16.4 16.4 17.1

7.1 7.7 7.9 7.9 8.4 8.2

3.4 3.0 3.0 3.1 3.3 3.6

7.7 11.7 11.7 12.3 12.6 12.5

9.0 9.1 8.9 9.2 9.6 9.4

NAFTA

Western Europe Eastern Europe

China

Rest of Asia-Pacific1) Rest of the world

2020

2018

2015

2013

2012

2010


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Iron and steel cast in Europe: Strong growth in Eastern European markets

European grey iron, ductile iron and steel cast production (in million tons)


12

Afrika

Major part of European growth taking place in Eastern Europe; which however also includes Turkish production volumes

Western European production on the other hand recovers slowly, Italy and Germany are more likely to grow and gain market shares in

competitive comparison

1.3 1.3 1.2 1.1 1.1 1.1

1.6 1.4 1.4 1.5 1.6 1.5

3.9 4.3 4.2 4.4 4.6 4.5 7.1

7.7 7.9 7.9 8.4 8.2

1.1 1.1 1.1 1.2 1.3 1.2 1.0 1.0 1.0 1.1 1.1 1.1

2020

2018

2015

2013

2012

2010

Rest

Spain

France

Germany

Italy

Eastern Europe


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Global aluminum cast production (in million tons)

13

Aluminum cast: China dominates its competitors

Germany gains market shares within Europe at the expense of Western European competitors; catching-up process stronger in Eastern

Europe

Most of the growth in NAFTA states due to investments of foreign OEMs

Korea und Japan lose market shares to China



3.8 4.5 4.7 5.0 5.0 5.2

1.0 1.5 1.6 1.6 1.8 1.9

2.2 2.3 2.3 2.4 2.6 2.9

0.3 0.2 0.3 0.3 0.4 0.4

2.0 2.6 2.7 2.8 3.0 3.1

2020

2018

2015

2013

2012

2010

1.5

3.2 3.2 3.3 3.4 3.4

NAFTA

Western Europe Eastern Europe

China



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European aluminum cast production (in million tons)


14

Afrika

The leap in Eastern Europe can be associated with the commissioning of a new alloy wheel production in Turkey; furthermore, capacities in

Slovakia were expanded

After strong growth in 2014, the German aluminum foundries are approaching the 1 million ton mark of good cast

Aluminum cast in Germany: Approaching 1 million tons

2020

2018

2015

2013

2012

2010

0.1 0.1 0.1 0.1 0.1 0.1

1.0

1.5 1.6 1.6

1.8 1.9

0.8 0.8 0.9 1.1 1.0

1.2

0.7 0.7 0.7 0.7 0.8 0.8

0.3 0.3 0.3 0.3 0.3 0.4

0.3 0.3 0.3 0.2 0.4 0.4

Rest

Spain

France

Germany

Italy

Eastern Europe


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Copper cast: China significantly ahead of other regions

Global copper cast production (in thousand tons)

15

The global copper cast production increased by 2.7% annually between 2010 and 2013 – until 2020 a significantly lower growth rate of 0.6% is

forecasted

While China´s market share remained constant since 2010, particularly the USA was able to gain market share; going forward no major

changes of market positions are expected



217 207 197 211 217 223

NAFTA

Western Europe Eastern Europe China


418 511 477 480 485 493

134 137 144 111 115 127

700 750 750 770 780 780

141 161 182 186 195 196 33 29 32 33 34 35

2020

2018

2015

2013

2012

2010


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European copper cast production (in thousand tons)


16

Afrika

While the copper cast production in Western Europe declined by 10% between 2010 and 2013, production is expected to experience a 13%

increase until 2020 with the highest growth in Italy, Germany and France

In Eastern Europe, a production decrease is expected, whereas Turkey is forecasted to show strong growth of c. 20% until 2020

Copper cast in Europe: Decline in Eastern Europe expected

2020

2018

2015

2013

2012

2010

43 38 36 37 37 37

Rest

Spain

France

Germany

Italy

Eastern Europe

8 12 12 13 13 13

19 18 18 19 20 20

69 63 63 68 70 75

77 77 69 75 77 78 134 137 144

111 115 127


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Key developments in the German foundry market

Development of the EST casting production1)

3.56 3.70 3.80 3.75 3.86 4.09 4.04

4.52 4.78 4.79

3.21

3.86

4.49 4.28 4.16 4.35 4.55 4.45

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Mil

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n

Total Grey cast Spheroidal graphite cast Steel and malleable cast

Development of the number of iron & steel foundries

310

265 258

2003 2008 2013

Iron and steel foundries

Composition of the casting production

60%

34%

6%

In detail

The average output per foundry increased by around 30% between 2003

and 2013, from 12,452 t to 16,124 t

Growing importance of spheroidal graphite cast iron (partly due to

vermicular graphite cast)

German foundries with market share gains in Europe strengthen sales

volume

Relative performance of foundries with good contacts to German premium

OEMs considerably better compared to other foundry companies

1) For 2015, 2018 and 2020: IKB extrapolation

Sources: Modern Casting, IKB research & analysis

17

Cast production in mt

1999

3.56 mt

2006 2013

57%

37%

6%

57%

37%

6%

4.52 mt 4.16 mt

Grey cast Spheroidal

graphite cast

Steel and malleable

cast

-17%


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Key developments in the French foundry market


2.15 2.29

2.15

2.63

2.13 2.06 1.97 2.06 2.12 2.06

1.49 1.62 1.68

1.44 1.42 1.48 1.50 1.50

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mil

lio

ne

n




48%

45%

7%

In detail

The average output per foundry decreased by nearly 11% between 2003

and 2013, from 12,754 t to 11,360 t

Strong drop caused by decreasing domestic vehicle production

Also weak performance on the part of French mechanical engineering

companies



18


1999

2.15 mt

2006 2013

42%

52%

6%

45%

50%

6%

2.06 mt 1.42 mt


graphite cast

Steel and malleable

cast

167

147

125

2003 2008 2013


-25%


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Key developments in the Italian foundry market


1.49 1.52 1.43 1.46 1.44

1.51 1.52 1.56 1.66 1.66

1.00 1.10

1.24 1.12 1.15 1.20 1.25 1.20

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Mil

lio

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69%

26%

6%

In detail

The average output per foundry increased by more than 42% between

2003 and 2013, from 4,645 t to 6,609 t

The Italian foundry market has a relatively small-scale organization

The development is negatively influenced by high energy costs as well as a

weak Fiat production

Upside potential due to recovery of the Italian mechanical engineering

industry



19


1999

1.49 mt

2006 2013

60%

35%

5%

60%

34%

6%

1.56 mt 1.15 mt


graphite cast

Steel and malleable

cast

310

197 174

2003 2008 2013


-44%


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Key developments in the Spanish foundry market


1.03 1.03

1.29 1.34

1.00

1.14 1.14 1.17 1.28 1.22

0.80

1.03 1.11

0.99 0.98 1.05 1.10 1.10

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Mil

lio

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43%

46%

10%

In detail

After the drop of the Spanish economy in 2007, not least because of the

plummeting construction industry, the EST casting production decreased

as well (particularly in construction-related segments)

Based on the slight recovery in 2013, we are expecting a moderate rise of

casting tonnage until 2018

In total, a constant change of the casting production from grey cast to more

complex material groups such as spheroidal graphite iron was observed.

This is mainly caused by mechanical engineering and vehicle

manufacturing

During the past ten years, a strong consolidation wave took place in the

Spanish foundry market

Thus the average output per foundry rose; nevertheless reaches only three

quarters of the German comparison value



20


1999

1.03 mt

2006 2013

38%

53%

9%

33%

59%

8%

1.17 mt 0.98 mt


graphite cast

Steel and malleable

cast

189

91 78

2003 2008 2013


-59%


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Strategic challenges of the global foundry industry

Globalization

Major part of the demand growth will occur in emerging markets

Especially the automotive industry is increasingly demanding local presence outside of Europe

Increases the need for a global footprint

Technological

leadership

Maintaining the technological leadership is of great importance for European foundries

Pressure on unit weights will continue

This changes the material mix and increases the requirements for the alloy competence

Retain qualified

personnel

Many qualified foundry workers will retire during the next years

Competition for staff intensifies due to changing age structure

Requires new worker loyalty programs (pension schemes, profit-sharing, flexibility regarding family & job)

Investment

requirements

Growing trend towards completely finished cast parts will necessitate respective investments

Complexity of foundry materials will grow and consequently drive investment requirements

Globalizing market requires increased investments in logistics processes

Margin pressure

Growing international competition in the vehicle manufacturing industry

This limits the possibility of passing on cost increases to end consumers

On the part of OEMs this pressure could be passed through to suppliers

Industry

consolidation

Thus the industry consolidation is expected to continue

Main reasons, besides the pressure for globalization, are increasing investment requirements

Also, many family businesses face succession-related problems from our point of view

The global foundry industry will face rising investment requirements. Together with succession-related problems in mid-

sized companies, this might increase industry consolidation

21


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Agenda 22




Appendix


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Sales development influenced by drop of raw material prices

Sales development in an international comparison In detail

The global foundry industry was able to expand its tonnage;

however, the drop of raw material prices, given a material use of

on average half of total output, prevented a respective sales

increase

At the beginning of 2011, the price per ton of aluminum alloy at the

LME was 2,275 US$/t, in 2013 it was only 1,790 US$/t

Drop of about 21%

Prices for old steel scrap (type 1) declined from on average

342.50 €/t in January 2011 to 250 €/t in December 2013

Drop of about 27%

Therefore, the sales drop of German and international foundries is

relativized

The expansion of casting tonnage was accompanied by a price drop for raw materials, effectively preventing a respective

sales increase

Sources: Bureau van Dijk, S&P Capital IQ, IKB research

23

-3.1%

-2.2%

-1.5%

-2.6%

2.1%

-2.3%

2012 2013

Germany Europe International

Weighted average


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Material expenses decline

Material cost ratio in an international comparison In detail

German foundries saw a significant reduction of their material cost

ratio, from 49% to 44.5%, during the observation period 2011 to

2013. Together with the slightly increased personnel expenses

ratio, this indicates a higher added value of foundries

Given growing supply of completely finished and ready-to-install

parts, as e.g. in the automotive industry, foundry companies can

increasingly strengthen their position in the value chain

European foundries achieved a slight drop of their material cost

ratio, from 54% to 52% of sales. Several foundries in Eastern

Europe are even above this value, which indicates outsourcing of

simple cast parts without great complexity

For Asian foundries, material expenses only changed marginally

during the observation period. However, identification of energy

costs is not always straightforward from annual reports of Asian

foundries

Declining material expenses indicate a higher added value for many foundries, particularly in Western Europe. This in turn

improves the long-term positioning in the value chain


24

Weighted average

49.0% 46.6%

44.4%

54.3% 54.1% 52.0%

41.0%

46.1%

41.8%

2011 2012 2013



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Personnel expenses globally increasing

Personnel expenses ratio in an international comparison

21.4%

23.5%

26.1%

17.9% 19.1% 19.0%

9.3% 10.0%

9.2%

2011 2012 2013


In detail

The personnel expenses ratio predominantly increased across all

regions, except for Asia, where it rather stagnated

However, personnel expenses are in general significantly lower in

Asian countries. Note that our selection comprises primarily

Chinese and Indian foundries. In Japan, expenses are comparable

to German levels

Further increasing personnel expenses are expected in emerging

markets going forward

Despite the crisis in the Euro-zone, rising personnel expenses

ratios were observed within Europe. The ratio rose from 18% to

19% between 2011 and 2013. Differences can be seen between

Western and Eastern European states. In spite of increasing

salaries, personnel expenses ratios in the latter region remained

considerably lower

In Germany, personnel expenses rose from c. 21.5% to 26%. The

gap between Western and Eastern German foundries reduced

In the medium-term, personnel expenses in Asian emerging markets are forecasted to increase further


25

Weighted average


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EBITDA: Profitability under pressure

EBITDA margin in an international comparison In detail

Profitability of foundries tended to decrease during the observation

period. Despite the reduction of material expenses in all regions,

this was not sufficient for a noteworthy improvement of earnings

Asian foundries experienced the largest decline. While their

operating profitability, as measured by EBITDA, was considerably

higher than the comparison values of German and European

foundries in recent years, foundries from all observed regions are

now on average on a comparable level

Reasons for the low profitability are on the one hand increasing

pricing pressure of the leading customer industry, vehicle

manufacturing, and on the other hand overcapacities in individual

sub-segments

Sub-segments with particularly high overcapacities were:

a) Construction-related casting applications in Southern

European countries

b) Castings for wind turbine components, especially for offshore

plants. Here, not only the planned commissioning dates were

pushed back, also the overall market expectations were

revised downwards relative to previous forecasts

Pricing pressure of customer industries recently increased


26

8.3%

7.6% 7.9%

8.6%

7.7%

8.4%

10.8%

8.7%

8.0%

2011 2012 2013


Weighted average


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Divergent capital base

Equity ratio in an international comparison In detail

German foundries experienced a declining capital base primarily

caused by increasing investments between 2011 and 2013

European foundries outside of Germany on the other hand were

able to stabilize their capital base. However, this was also due to a

scaling back of investments, partly caused by limited access to

loans in Southern Europe. This in turn could lead to a degradation

of the companies’ competitive positions in the medium- to long-

term

Asian foundries on the contrary were able to increase their capital

base. In this context, relevant companies profited from various

subsidies and tax incentives

Asian foundries profit from subsidization and overall good market environment


27

36.2% 37.2%

34.4%

37.7% 38.9%

37.4% 37.9% 39.1%

41.9%

2011 2012 2013


Weighted average


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Conclusion

28

The global foundry industry is set to profit from strong growth of key customer industries

during the next years

Asia is expected to outgrow the general market even in the medium- to long-term

Competitive pressure from other technologies e.g. forging or sheet metal forming is expected

to remain strong; however, especially for structural components in light vehicles we see a

trend towards casting technologies

In Europe, we expect higher growth rates for aluminium foundries compared to iron, ductile

iron and steel foundries. In Germany, an aluminium casting production of around 1.2 million

tons is possible until 2020

The profitability, as measured by EBITDA margin, globally declined during the last years due

to increased pressure from customer industries. Asian foundries with higher capital base, not

least resulting from various forms of subsidies

During the next years we forecast an ongoing consolidation process in the global foundry

industry


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Agenda 29




Appendix


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Your contact persons at IKB

30

Dr. Heinz-Jürgen Büchner Managing Director, Industrials, Automotive & Services

Phone: +49 (69) 79599-9602

Fax: +49 (69) 79599-8602

Mobile: +49 (171) 2249517

Email: [email protected]

Jonas Gloßner Analyst, Industrials, Automotive & Services

Phone: +49 (69) 79599-9719

Fax: +49 (69) 79599-8719

Mobile: +49 (170) 9146487

Email: [email protected]

IKB Deutsche Industriebank AG

Eschersheimer Landstraße 121

60322 Frankfurt

Germany


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Disclaimer

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