Competitive Trends in the Wire and Cable Industry by Gordon Thursfield Nexans North America September 10, 2003 Presentation to ICC 0
Agenda Technological Developments Industry Rationalization Economic Environment The Future September 10, 2003 Presentation to ICC 1
Example: Energy networks Laying vessel Submarine energy cables Overhead HV cables Underground MV Cables Overhead HV cables Equipment & special cables Overhead HV cables OPGW ADSS HV/MV Underground MV Cables Underground HV Cables Electrical power plant LV insulated overhead cables MV/LV LV underground cables September 10, 2003 Presentation to ICC 2
Example: Telecom networks Cellular antennas and systems Submarine networks Long haul cables ROW* Rivers and waterways ROW* Gas lines Fresh water ROW* Power lines OPGW/ADSS cables Interconnect hardware Metropolitan cables ROW* Highways Fiber in the loop Long haul cables Local area networks: cabling solutions and component s ROW*: Right of ways ROW* Railways Underground and aerial cables September 10, 2003 Presentation to ICC 3
Example: a car Special cables for heated seats, windows, POF cables for multimedia applications Winding wires for small motors Precision cables for sensors used for airbags, brake pads, Winding wires for electronic coils used in many instruments such as dials for speed and fuel Special cables for ABS systems Coaxial cables for communication & navigation systems Magnebond wires used in various motor components Automotive harnesses that link information and Power supply systems September 10, 2003 Presentation to ICC 4
Example: Smart Buildings Copper & Fiber LAN Multimedia Industrial LAN Elevator cables High Voltage cables for power distribution Ballasts for lamps Low Voltage Wires for HVAC AV surveillance cables Cables for Fire security MV cabinet Rubber Process control MV power cables Heating cables Alarm wires for burglar alarm September 10, 2003 Presentation cables to ICC 5
Example: shipbuilding Hybrid energy & data cables for surveillance cameras and information transmission Optical Fiber to connect antennas to distribution networks Telephone cables LV energy cables for lighting Maritime LAN cables for telecommunication and passenger video service and entertainment Sensor measurement and fieldbus cables for hydraulic systems, motors and rudder control High and Low Voltage energy cables for propulsion and power distribution Coaxial cables & Cat7 solutions for entertainment and internet services Thin-wall LV cables to provide energy to equipment, conveniences, cabins, Instrumentation & Control cables to carry technical information Winding wires for motors, generators, compressors, September 10, 2003 Presentation to ICC 6
Wire and Cable Industry Technological Developments Power Cables - Medium Voltage Paper Lead Thermoplastic High Molecular Weight Polyethylene Crosslinked Polyethylene (XLPE)/Ethylene Propylene Rubber (EPR) High Performance Crosslinked Polyethylene Tree Retardant Compounds High Performance Shields Water Blocked Cables High Performance Jacketing Materials Cable life well in excess of 40 years even in arduous conditions. Paper insulated cables totally out of the picture. The industry is now totally comfortable with MV TRXLPE/EPR cables in almost all environments. September 10, 2003 Presentation to ICC 7
Wire and Cable Industry Technological Developments Power Cables - High Voltage Oil Filled/Oil Impregnated Cables Crosslinked Polyethylene (EPR to 230 kv) Super Conductors Crosslinked polyethylene now the standard for almost all voltages and particularly >230 kv. Crosslinked XLPE performs well even at extra high voltage. E.g. several 500 kv installations performing well. Super conductors could be the norm for inner-city installations 10 years from now. September 10, 2003 Presentation to ICC 8
Wire and Cable Industry Technological Developments Industrial Application Cables Trends include: Fire Retardant Low Smoke Zero Halogen Crosslinked Jackets - Water Curable Compounds High Flexibility Cables Umbilical Cables for Off-Shore Installations Ultra High Temperature Resistant Technology has advanced to the extent that cables can be designed to perform in almost any environment. September 10, 2003 Presentation to ICC 9
Wire and Cable Industry Technological Developments Telecommunications and Data In a little over 10 years, fiber optic cables have become a commodity - contributing to massive reliance on industry and society on high performance communications on a world wide scale. Also high performance data cables have emerged to satisfy needs for high speed and universal internet access. September 10, 2003 Presentation to ICC 10
Wire and Cable Industry Industry Rationalization Profitability of Industry Despite massive technological advancements this is not a profitable industry. Margins are very thin. Costs of maintaining a presence in industry while continually advancing technology are high. The market does not reward excellence. As a result - Significant rationalization - but still no where near enough. A number of high profile bankruptcies. Difficult to continue to attract talent to facilitate continued advancement. September 10, 2003 Presentation to ICC 11
Wire and Cable Industry Economic Environment The World Picture Commodity application cables have migrated to low cost countries (primarily ASIA). e.g. Cords Cord Sets Magnet Wire Lighting Cables Automobile Harness Wiring Low Category Data Cables Hook-Up Wires and others could follow: e.g. Overhead Transmission Building Wires Electronic Application Cables The North American manufacturing base for wire and cable will continue to shrink! September 10, 2003 Presentation to ICC 12
Wire and Cable Industry Economic Environment The European Picture Many famous companies have disappeared and/or been absorbed through rationalization and closures. Creation of the single European market has eliminated country specialists and leaders. Market rationalized to 3 major players in Europe - Nexans Pirelli Draka and a few product specialists focussing on specific market niches. The North American, and indeed, the World market could follow. September 10, 2003 Presentation to ICC 13
Sales 2001 (by geography) Sumitomo Nexans Pirelli C&S Corning OF & Cable Draka Superior Telecom General Cable Avaya C.S. Belden CDT Europe North America Rest of World September 10, 2003 Presentation to ICC 14
Leading cablemakers have faced declining markets over the last two years 4 302 Sales Evolution (Leading Publicly Quoted Companies $M) 3 460 Average sales decline (2000-2002) -18 % 2000 2001 2002 1 512 1 499 1 454 1 113 813 518 Company A B C D E F G H 2000/2002-10 % -25 % -26 % -17 % -18 % +13 % -28 % -39 % September 10, 2003 Presentation to ICC 15
Over this period, OP has gone down by 76 % on average 270 220 2000 2001 2002 Operating Profit ($M) 2000-2002 OP: -900 M (-5pp) 170 120 70 20 70 56 52 39 39 39 23-26 Company -30 F A E C G D H B OP 2002 6.0 % 1.3 % 3.5 % 2.6 % 4.8 % 2.6 % 4.5 % -0.8 % September 10, 2003 Presentation to ICC 16
150 100 OP Telecom ($M) 2000-2002 About 80% of the OP decline is related to the Telecom crisis 2000 2001 2002 50 39 29 23 0 Company G C H E D A B -14 4-50 -35-81 2000/2002 OP margin: Sales: -100 9 5 % 14 6 % 13 5 % 9 1 % 15-5 % 5-6 % 11-18 % -28 % -38 % -39 % -31 % -50 % -34 % -67 % Telecom contributes $700M to the profit decline. September 10, 2003 Presentation to ICC 17
OP from non-telecom businesses has become vital to many cablemakers 140 "Non Telecom" OP ($M) 120 100 2000 2001 2002 80 83 68 70 60 55 48 40 33 20 0 OP margin 2002 A D F B E C 2.6 % 5.5 % 6.0 % 1.8 % 4.7 % 3.3 % September 10, 2003 Presentation to ICC 18
In summary The environment has changed dramatically over the past two years - Most players have been injured and a few are barely alive All have been actively restructuring their operations to cope with current market conditions: Significant headcount reductions at all major players. Industrial rationalization with elimination of excess capacity and reduction of floor space Reduction of SG&A in line with sales decline Looking forward, there is not any sign of a market recovery yet and the cable business is more challenging than ever: Cost/price competitiveness will remain key to achieve decent margins Fight among large and small players to secure/gain market share is likely to intensify Impact of Asian, East European, South American competition will also intensify. September 10, 2003 Presentation to ICC 19
Demand for Electrical Equipment Products has Declined 25% in the Last 5 Years (Millions of 1996 Dollars, SAAR) 3400 3200 3000 2800 2600 2400 2200 1998 1999 2000 2001 2002 2003 Source NEMA - July 2003 September 10, 2003 Presentation to ICC 20
Employment in our Industry has Declined 30% in the Same Period (Number of Employees, in Thousands) 230 220 210 200 190 180 170 160 1998 1999 2000 2001 2002 2003 Source NEMA - July 2003 September 10, 2003 Presentation to ICC 21
Decline in US Demand for Wire and Cable is Even Greater (Seasonally adjusted index, average quarter 1987=100) 170 160 150 140 130 120 110 100 90 80 1998 1999 2000 2001 2002 2003 Source NEMA - July 2003 September 10, 2003 Presentation to ICC 22
Wire and Cable Industry The Future Future Challenges North America is an increasingly expensive manufacturing base. High Labour and Benefit Costs. Environmental, health and safety, taxation and other costs much higher than in developing countries. Employment in US manufacturing has declined 20% since 2000. To succeed, North American manufacturers must continue to differentiate themselves. Cannot compete on manufacturing cost alone on commodity items. Must compete on service, quality and technical leadership and higher value added products. Must continue to develop system solutions to create value-added to the customer. September 10, 2003 Presentation to ICC 23
Wire and Cable Industry The Future Future Challenges Perhaps the biggest challenge of all is to advance cable and cable system design to facilitate high levels of manufacturing efficiency. The potential for significant infrastructure investment in the North American power grid, presents a real challenge for our wire and cable engineers. Propose System Solutions Propose Latest Technologies Propose Underground Solutions Wherever and Whenever Possible. Pro-active leadership from the wire and cable industry on this issue could improve the viability of our industry during the next decade. September 10, 2003 Presentation to ICC 24