Tire Industry Strategy

Transcription

1 Tire Industry Strategy Koo, Sunglim

2 Where, who are manufacturing tire within global top11? p1 Korean brands have grown up significantly as a member of top class S.Korea France Germany Italy Japan U.S (based on original nationality included subsidiary)

3 Who belongs to Top 10 of industry Kumho is ranked as No.10 based on the sales 2004, Cooper bought the shares of company on Jan as much as 10.7% with the condition of lock-up for 3 years. They aim to make strategic alliance regarding the distribution, R&D, production and purchasing. p2 1,600 2,060 2,600 3,300 1,650 1,500 19,000 4,200 7,000 14,000 (USD Million) 16,800 Source: 2005 Fact Book Statistics, Modern Tire Dealer Inc., Akron USA N.America, Europe and Japan covered close to 65% of market demand, and nearly 90% of tire manufacturers based on these areas. Since 2000, Asian market has grown up remarkably, became to cover 30% of tire market in last year, almost tire manufacturers are focusing on China, India, Russia as the next huge market to propel the industry.

4 What are they doing now? The sheet summarized based on market news and company news or materials p3 1.Divide brand image between B/S and F/S 2.Expand production capacity in Europe 3.Enhance the motor sports 4.Strenthen the distribution channel in U.S 1.Sustain the leadership by advanced technologies (Safety, energy efficiency, environmental friendliness) 2.Enhance the production capacity in Russia 3.Enlarge the business of SCM such as N/Rubber 4.Strenthen the distribution channels(euromaster,tci) 5.Operating margin targeted 10% in Cut down manufacturing cost 2.Strenthen the sales of value-added tires 1.Enhance the motor sports or UHP 2.Expand overseas production 1.Divide B.I between commercial and racing tire 2.Strenthen UHP business by Falken brand 1.Expand overseas production more aggressively 2.Enhance the UHP sales and brand building for ECSTA 3.Strenthen the productivity, operating margin targeted 12.5% in Enhance the motor sports & marketing 5.Develop the strategic business model with Cooper 1.Keep the stable business 2.Make the better popular brand

5 Sustainability of the competitiveness Kumho sets a sales goal of 1,832bn won with 32.7 million tires this year, it basically designed from the effect of double-sized increasing of Nanjing plant in Mainland China and the better improvement of sales mix including the higher demand for premium tires like a HPT or UHPT. Actually UHPT sales was accomplished above 18.0% of total revenue more than business plans of 17.6% during the 1 st half, this over-achievement must be supported by good activities for motor sports for many years. Kumho participated in Leman 24 on Jun. this year followed on Marlboro Masters, Euro Series as a world biggest games. Additionally Kumho is trying to build its own distribution channel worldwide, TIRE-PRO shop for domestic market, PRIMA STORE for Chinese market, and expected to cooperate with Cooper in N.America or Europe. OPM is getting to the better nowadays, 11.4% of Q2 after 10.2% of Q1 this year, these performance could be distinguished with 9.6% of last full year. Furthermore, Kumho is now going to recover from sluggish performance before. Kumho once had kept to achieve 13~15% of OPM in former days, and aim to carry through with 12.5% this full year. Michelin has kept the 7% level in these 3 years, has kept the 8% level since 2003, has survived barely with the 4% of last year as a member of Tier-1. was just 4-5% level, they have achieved the 8-9% level both Continental and Sumitomo(SRI) recently as better outcome of Tier-2. Toyo(Japanese, ranked as No.11, 2004) OPM underperformed two Korean brands, it was only 3-4% level although its sales is similar size with them as Tier-3. Kumho continue to cut down the unnecessary expenses in operating, reduce the exporting expenses with renovation on working process. COS% is calculated nearby 74% as compared 80% of, 63% of and 64% of Michelin, Material % is usually 36% as compared 34% of Michelin. According to the above result, Material performance must be good despite big difference of sales size, Michelin is actually the bigger 13times than Kumho in terms of total revenue. Therefore, we can easily find Kumho s payroll cost must be much higher than B/S, M/C in terms of portion of total revenue. Kumho is trying to reduce the manufacturing cost, COS% declined 0.9% in H1/05 compared When several plants will be established overseas sooner or later, COS% can be shrunk significantly. Kumho s oversea production% was 16% in 2004, has raised 26% since Apr. this year, and planned up to 35% until 2007 as business planning. In terms of automated manufacturing, Kumho has plan to reduce the manufacturing cost by using advanced technologies such as APU and the others, Kumho is replacing old facility with new one in the past factories. Additionally Kumho and Cooper make an effort to build the cooperative SCM(Supply Chain Mgm.) to increase bargaining power for raw materials p4

6 SWOT Analysis of Kumho p5 Strengthen motives -Advanced technologies both product and facility -Successful China business & 12m capacity in China -Good experience of Motor Sports early ECSTA brand building for UHPT (5.5% M/S of H/P&UHP market in U.S, 2004) Threatener -Raw materials price -Government Regulations -Keen competition Opportunities -Manufacturing cost cutting down owing to the penetration of producing -Some benefits for strategic alliance with Cooper -Harmonious mood with labor union -Ability to grow up as Tier-2 in UHP market Weakness points -High level of labor costs in S.Korea -Strong labor union in S.Korea -Weakness of OEM overseas -Shortage of capacity Kumho s labor union finally agreed on 6.0% increasing of salary this year with a sweeping approval of 72.5%, this result could be distinguished with 2 digits-increasing in recent years. Salary negotiation used be concomitant with the strike for a few days, but it was not happened this year. In terms of OEM overseas, basically under the condition that Kumho s capacity has been not fluent, Company could not decide easily to enlarge the OEM overseas. Therefore, Kumho is building now new plants more aggressively to enlarge its business. At the first, Kumho will be dominant tire manufacturer in Mainland China from next year as much as 17.3m capacity and it s planned up to 24m. Besides, Kumho is talking about Joint Venture Company with automaker in China, probably we can announce about this matter on Sep as soon as practicable. Although it is not clear until now, the other projects are considered outside plants located Eastern Europe, Southeastern Asia or India. In terms of the alliance with Cooper, they are negotiating very carefully about the several possibilities of cooperation form supplying to distribution, or JVC for TBR in China and so on. Cooper s equity is locked up for 3years in accordance with agreement, and so this strategic alliance will be going toward the more practicable compared with previous alliance of the other members.

7 Developing distribution channel p6 TIRE PRO for ECSTA Kumho is building its retail shop, called TIRE PRO is providing service for tires and associated services regarding the automotive maintenance. TIRE PRO help and support to drivers by balancing or alignment and so on, recommend the best tire suitable for each other vehicles, or take care of driver s convenient. TIRE PRO is Korean domestic brand, established 59 shops until now(july, 2005), planned 120 shops-network. This retail strategy is very similar with of North America. Interior for luxury & convenient Training for the better Work place for mechanization Specialized training program, Specialists and advanced facilities, Always support your driving

8 Comparison slice p7 Michelin Continental Sumitomo Tier % 10.0% Tier-2 Hankook Kumho Continental Sumitomo Michelin Next leader? Cooper Hankook Kumho Market share(global) 3.0% 5.0% Cooper Tier-3 Operating Margin% In the matter of growth sustainability, almost one used to consider the efficiency of company. Therefore, Korean brand have some benefits to go well in next future with high working efficiency and competitiveness both quality and price, Especially Kumho is well known brand which ECSTA specialized for UHPT with strong competitiveness both same quality and low price compared with Tier-1. Furthermore, we have to keep our eyes on the rush by Korean automotive brands such as Hyundai or KIA, this positive effect will be help to increase Korean brand images especially for Korean tire manufacturers. Michelin 18.0% 8.0% Michelin Continental Sumitomo Cooper Market share(general) Hankook Kumho 3.0% BFGoodrich Dunlop Toyo Falken 6.0% Kumho Yokohama Firestone Next leader? Market share(uhp/u.s)

9 Market valuation Stock price information p8 (US $) EUR:USD 1:1.22 JPY:USD 100:0.90 KRW:USD 1,020:1 (based on the closing price of Aug. 2, 2005) Michelin Continental Sumitomo(SRI) Cooper Hankook KUMHO Basic EPS, 2004 P/E Comparison chart Michelin Continental AG Based-NYSE valid for overvalue? $ (US $) Sumitomo Rub. Cooper Hankook KUMHO $ 0.76 $ 0.37 W 1,105 W 2, Michelin Continental Sumitomo(SRI) Cooper Hankook KUMHO Michelin (KUMHO listed dual on LSE & KSE) (It was used above currency change for convenient) (P/E = price of 05 / EPS of 04 for convenient)

10 Briefing for market and industry Africa/Middle/ East Latin America Asia /Oceania 30% North America 30% Europe 28% Market volume by region (Source: LMC 2004) Aircraft Agricultural 2-wheel Earthmover Truck/Bus 32% PCR/LTR 51% Market volume by tire type (Estimation) p9 Just 25.0% depends on the Auto-makers or automotive industry, much bigger 75.0% exists as independent market. Although many analysts worry about the high up of material cost, almost tire manufacturers are used to avoid 63,000 this risk by using of ASP increasing due to the material effect or sales mix. Global tire ranking keeps up for a few decades without big change, this trend could be explained fluently for high entry barrier or brand block of tire industry. 53,000 43,000 OEM 25% REM 75% Volume by market type (Estimation) Domestic RE Export Domestic OE 33,000 Tire company gain the bigger profit from REM rather than OEM, OE margin is very slender.in Korean OEM, it is divided both Kumho and Hankook in balance volume. H1/04 H2/04 H1/05 ASP trend by market type (Company)

11 Geographic characteristics Production belt shifting from America to New Areas for reducing manufacturing cost and new market, it means not tire capacity increase unconditionally even if it will be always increased every year. p10 focus on Eastern Europe Michelin focus on Russia Michelin focus on India Kumho focus on China G/T, J/K, C/S(Asian followers) is growing as new entries Asia 13% Europe 55% North America 32% ASIA Low-tier Market 10% General radial Market 30% Value-added Market 60% Global tire market by profitability (Estimation) North America & Western Europe Global top 11 are competing in this pie passed previous market BRICs and Eastern Europe UHP forecasting by region (LMC, 2005) New developing countries need the more TBR(Truck&Bus Radial) for constructing economy or moving resources. Until now, 2/3 market still exist as new opportunity market for the automotive including tire industry. Nobody cannot make sure how much grow in these market near future, and so it maybe meaningless discussion about over-production of tire industry.

12 Driving on technology p11 Fashionable Stylish UHP Tire TPMS Tire High-efficiency of energy Safety-conscious Run-flat Tire HP Tire Environment-conscious Tire 4-Season Tire High-endurance Better wearing Radial Tire Tip on ideas, Multiple for on & off-road.. Color changeable. Automated recover pressure Non-air injection tire... Break distance zero.. People are used to misunderstand the tire don t need high technology, but tires have been always developed or improved since mid of 1800s. And tire industry have history for only 200 years, tires have changed to several generations (Bias-Radial-UHP etc) during that time. Today Kumho, about 350 engineers are developing now the advanced technology for care of drivers and the better driving or protection of environment for lovely our children.

13 Beautiful mind of Kumho IR feedback to; Koo, Sunglim Thank you for attention