WESTPORT INNOVATIONS INC. Presented by: Simon Fraser University March 5, 2011.
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Transcript of WESTPORT INNOVATIONS INC. Presented by: Simon Fraser University March 5, 2011.
WESTPORT INNOVATIONS INC.Presented by: Simon Fraser University
March 5, 2011
Content
Overview.………………………………………………Positive Drivers.....………………………………….Negative Drivers…….…………..…………………..Valuation………….……………………………………
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Section1234
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Recommendation
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Report Price
as ofDecember 3, 2010
$19.30
Target Price
$16.38
HOLD
TSE: WPT
Westport Innovations
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Formed in 1995, headquartered in Vancouver, Canada Over 400 patent applications worldwide with over 200 issued patents 186 employees with 7 partners across the globe
Natural Gas Engine Technology
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Joint Ventures & Partnerships
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Equity Financing
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Strong Foundation
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Forecasted Fuel Prices
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Government Incentives
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Strategic Partnerships
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Global Engine Producers
Global Truck Producers
1. Weichai2. Volvo3. Daimler4. Cummins5. CNHTC
1. Daimler2. Volvo3. Dongfeng4. Tata5. FAW
Weichai Westport Inc.
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Adapting Business Model
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Westport HD Diesel
Pmt Per month $4,000 $2,400
Maintenance CostPer mile
0.115 0.085
Annual mileage Fuel Cost
100,000$2.10/DGE
100,000$3.60
Per month:
Fuel (at 5 mpg) $3,500 $6,000
Lease charge 4,000 2,400
Operating charge 958 708
TOTAL $8,458 $9,108
Savings $650 / month
Management
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Sound Balance Sheet
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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High Uncertainty
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Is there a market?
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Market Resistance
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Technical Complexity
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Natural Gas Engine Diesel Engine
Double the price Less power and torque Requires special parts Requires more maintenance
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Infrastructure Limits
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Source: DOE as of September 16, 2010
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R&D Costs and IP Risk
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Source: Westport
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Valuations
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Comparable Companies
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Company Name EPSMarket Cap
($M)P/E P/S EV/Sales
Woodward Inc. 1.49 2,556.34 24.89x 1.75x 1.78x
Clean Energy Fuels Corp. -0.27 958.1 - 5.61x 5.17x
Fuel Systems Solutions Inc. 3.39 626.61 10.49x 1.23x 1.25x
China Automotive Systems Inc. 1.09 403.75 13.66x 1.23x 1.32x
Hydrogen Engine Center Inc. -0.11 2.42 - 1.78x 4.28x
Averages3/5
Positive909.45 16.35x 2.32x 2.76x
Westport Innovations Inc. -17.88 903.96 - 6.26x 4.70x
Value Driver – Revenue Growth
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
CWI accounted for 92% of Westport’s total revenues in 2010 Wildcard projects include Weichai-Westport, Volvo Powertrain
CAGR 32%
CAGR 16%
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Product Revenue
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Forecasted 20% annual growth in units shipped from 2011 – 2015 Unit price growth driven by refocus on HD segment
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Cash Flow
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Operating cash flow to break-even by 2013
25
FCFF Valuation
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Cost of equity 11.18%
Cost of debt 8.10%
WACC 11.10%
Terminal growth rate 2.00%
PV of firm $ 658,187
Add: Cash & equivalents $ 211,461
Less: Debt $ 23,656
PV of equity $ 851,239
Outstanding options 2,091
# shares outstanding 48,929
Intrinsic value $ 17.40
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Sensitivity Analysis
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Cost of capital 8.3% 11.1% 13.9%
Terminal growth
1.5% 21.55 16.80 14.09
2.0% 22.76 17.40 14.45
2.5% 24.18 18.07 14.84
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Gross Margin 30.0% 35.0% 40.0%
Growth Stage CAGR
15.0% 5.06 7.79 10.52
20.0% 14.27 17.40 20.52
25.0% 24.69 28.26 31.84
Summary
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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Catalysts
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Conclusion to NAT GAS Act Broader Market Adoption of Natural Gas
Vehicles Climbing price of oil Growth in Asia/ Weichai JV
Contact Information
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Simon Fraser University
Beedie School of Business
500 Granville Street
Vancouver, Canada
Tel +1 (778) 782-5209
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Index of Slides
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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OverviewRecommendationCompany BackgroundEngine TechnologyJVs and PartnershipsEquity FinancingPositive DriversStrong FoundationForecasted Fuel PricesGovernment IncentivesStrategic PartnershipsWeichai Westport Inc.Adapting Business ModelManagementSound Balance SheetNegative DriversHigh UncertaintyMarket ResistanceTechnical ComplexityInfrastructure LimitsR&D Costs and IP RiskBreak-Even Point
ValuationsComparable CompaniesFCFF ValuationValue DriversRevenue GrowthProduct RevenueParts RevenueRevenue ForecastGross MarginOperating EfficiencyOperating Cash FlowWACC CalculationWorking CapitalNet InvestmentSensitivity AnalysisInvestment SummaryCatalystsDCF AssumptionsFinancial AnalysisKey RatiosCash Burn RateR&D ExpenseSegment Analysis
Pro Forma StatementsIncome StatementBalance SheetStatement of Cash FlowsOtherBoard of DirectorsManagementManagement CompensationBusiness OverviewPartnershipsGoing GreenUS Truck MarketCompetitorsEarly AdvantageCompetitive AnalysisGovernment IncentivesInternal RiskExternal Risk
Investment Summary
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
– Neutral +
Industry
Engine Competition
Alternative Competition
Financial
Management
Risk
32
2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E
Product
Units shipped 4,509 5,411 6,493 7,792 9,350 10,285 11,314 12,445 13,690 15,059
Unit shipped growth 15% 20% 20% 20% 20% 10% 10% 10% 10% 10%
Unit price 26.55 27.08 27.62 28.17 28.74 29.02 29.31 29.61 29.90 30.20
Unit price growth 2.0% 2.0% 2.0% 2.0% 2.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Product revenue 119,703 146,517 179,337 219,508 268,678 298,501 331,635 368,447 409,344 454,781
Parts 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 10.0%
% Previous 2-years' product sales 18% 18% 17% 16% 15% 14% 13% 12% 11% 10%
Parts revenue 36,865 39,915 45,257 52,137 59,827 68,346 73,733 75,616 77,009 77,779
Service 6,000 5,000 4,000
Total revenue 162,568 191,433 228,594 271,645 328,505 366,848 405,369 444,063 486,353 532,561
Source: Team B Student Research
Revenue Forecast
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
33
Parts Revenue
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
34
Rolling 12 Month Basis
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35
Factor Rate Source
Beta 1.53 Bloomberg risk-adjusted 5-yr monthly beta
Rf 3.55% Bank of Canada 10-yr bond yield as of 1 Dec 2010
Risk premium 5.00% Market implied risk premiumSource: Damodaran (2010)
Cost of equity 11.18% Calculated using CAPM
Cost of debt 8.10% After tax interest rate on most recent debt offering
WACC 11.10% Weight-adjusted by market value of debt to equity
Source: Team B Student Research
Discount Rate Calculation
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
36
DCF Assumptions
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Commodity Price Risk Development Risk
development cost overruns procurement delays permitting issues
Operational Risk Weather related Unexpected changes in mineralogy
Currency Risks
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Source: Team B Student Research
Discounted FCFF
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
After-tax operating earnings (7,015) (12,391) (7,795) (579) 3,903 7,377 12,995 11,064 10,097 36,722
Less: Changes in non-cash working capital
(13,748) (13,292) (16,991) (20,626) (25,464) (17,454) (17,661) (17,891) (19,652) (14,723)
Less: Cap Ex - Depreciation (2,353) (1,185) (277) 290 671 (548) 815 490 473 479
Free cash flow to firm 9,086 2,086 9,473 19,758 28,696 25,379 29,840 28,465 29,276 50,967
Discount factor 1.11 1.23 1.37 1.52 1.69 1.88 2.09 2.32 2.58 2.87
Present value 8,177 1,690 6,908 12,968 16,953 13,495 14,282 12,263 11,352 560,094
Account Balances 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E
Non-cash current assets
Accounts receivable 18,216 21,450 25,614 30,437 36,809 41,105 45,421 49,757 54,495 59,673
Inventories 10,833 12,900 15,540 18,796 22,730 25,383 28,048 30,726 33,652 34,015
Prepaid expenses 1,567 1,880 2,254 2,703 3,242 3,887 4,662 5,591 6,704 8,040
Non-debt current liabilities
Accounts payable and accrued liabilities 15,416 18,357 22,114 26,747 32,346 36,121 39,914 43,724 47,888 48,404
Deferred revenue 1,657 1,973 2,377 2,875 3,477 3,883 4,291 4,700 5,148 5,637
Warranty liability 12,877 15,163 18,107 21,517 26,021 29,058 32,109 35,174 38,524 37,279
Source: Team B Student Research
Schedule of Working Capital
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
39
Source: Team B Student Research
Schedule of Net Investment
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
40
2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
∆Sales/Cap Ex 20 20 20 20 20 20 20 20 20 20
Capital Expenditure 1,318 1,523 1,946 2,399 2,899 1,955 1,964 1,973 2,156 2,356
Depreciation 3,671 2,708 2,223 2,110 2,228 2,503 1,149 1,483 1,683 1,877
PPE 3,856 2,671 2,394 2,684 3,355 2,807 3,623 4,113 4,586 5,065
Key Financial Ratios
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
2008 2009 2010Profitability
Revenues (CAD) 71.5 121.8 130.7
Gross Margin 31.5% 25.3% 31.6%
Net Income (CAD) -10.3 -24.4 -37.6
Net Profit Margin-
14.4%-
20.0%-
28.8%
Operation Efficiency
Return on Assets-
13.1%-
18.0%-
24.1%
Return on Equity-
34.6%-
40.1%-
44.3% Asset Turnover Ratio
0.91 0.90 0.84
Liquidity
Current Ratio 1.8 3.6 4.8
Quick Ratio 1.5 3.2 4.5
Leverage
Debt-Equity Ratio 1.7 1.2 0.8
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Cash Burn Rate
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
2009 Q3 – 2010 Q2 Total
Net Income -31.22
Add: Depreciation & Amortization 2.36
Other Non-Cash Adjustments 9.92
Changes in Non-Cash Capital 14.64
Cash Outflow -15.63
Monthly Burn Rate -1.30
Cash at 2010 Q2 71.59
Months of Burn Remaining 55.07
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R&D Expense
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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R&D Expense
Net Income
Net Income Without R&D
2003 37.29 -48.51 -11.22
2004 26.09 -37.72 -11.63
2005 18.42 -26.21 -7.79
2006 16.94 -16.86 0.08
2007 21.89 -11.31 10.58
2008 23.03 -10.32 12.71
2009 30.98 -24.43 6.55
2010 28.41 -37.64 -9.23
Segment Analysis
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Figure 8.2. Natural Gas Vehicle Growth by Region
Region Average Growth
Asia-Pacific 51.0%
Europe 15.8%
North America -0.1%
Latin America 23.5%
Africa 19.2%
Worldwide 27.5%
Source: IANGV
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Investment Risks
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Figure 8.3. Incremental Engine Costs Over Diesel
(in $US)Sector (in thousand lb) Extra CostLight-duty (10 lb – 14 lb) 17,000Medium-duty (14 lb – 26 lb) 40,000Heavy-duty (26 lb +) 60,000Source: EIA
Figure 8.4. Natural Gas Station in Each State
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Income Statement
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
46
2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Revenues 71,536 121,837 130,712 162,568 191,433 228,594 271,645 328,505 366,848 405,369 444,063 486,353 532,561
CoGS (49,023) (91,020) (89,352) (101,769) (121,181) (145,986) (176,569) (213,528) (238,451) (263,490) (288,641) (316,130) (319,536)
Gross profit 22,513 30,817 41,360 60,799 70,251 82,608 95,076 114,977 128,397 141,879 155,422 170,224 213,024
Research and development (23,026) (30,982) (28,411) (28,979) (29,559) (30,150) (30,451) (30,756) (31,064) (31,374) (31,688) (32,005) (32,325)
General and administrative (6,033) (8,575) (12,728) (15,430) (18,705) (22,675) (27,488) (33,322) (40,395) (48,969) (59,363) (71,963) (87,238)
Sales and marketing (10,550) (15,071) (18,102) (18,230) (29,436) (35,355) (35,606) (44,768) (47,058) (47,392) (51,824) (54,476) (54,862)
Depreciation and amortization (1,550) (1,978) (2,128) (3,671) (2,708) (2,223) (2,110) (2,228) (2,503) (1,149) (1,483) (1,683) (1,877)
Foreign exchange gain (loss) (1,287) (682) (348) (424) (424) (424) - - - - - - -
Interest income 1,316 1,882 383 1,713 3,538 3,878 3,956 5,409 6,017 7,607 8,628 9,741 13,259
Other non-operating income (expense)
5,095 9,033 (5,559) (8,591) (9,857) (11,123) (12,389) (13,655) (14,921) (16,187) (17,453) (18,719) (19,985)
EBIT (13,522) (15,556) (25,533) (12,814) (16,899) (15,465) (9,012) (4,343) (1,527) 4,415 2,239 1,118 29,996
Interest expense (1,266) (2,348) (3,208) (2,681) (2,777) (2,897) (576) (617) (660) (706) (756) (809) (866)
Pretax income (14,788) (17,904) (28,741) (15,495) (19,676) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130
Income tax recovery (expense) 4,473 (6,521) (8,895) (1,504) (2,235) - - - - - - - -
Net income (10,315) (24,425) (37,636) (16,999) (21,911) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130
Less: Abnormal gains (losses) 10,659 14,275 2,972 - - - - - - - - - -
Normalized income (20,974) (38,700) (40,608) (16,999) (21,911) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130
Balance Sheet
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
47
2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019eCurrent assets
Cash and cash equivalents 22,762 82,619 105,851 211,461 192,116 191,894 192,455 209,803 235,032 268,771 305,162 345,581
Accounts receivable 7,028 6,417 11,570 18,216 21,450 25,614 30,437 36,809 41,105 45,421 49,757 54,495
Loan receivable 6,774 11,234 13,505 15,146 18,035 21,727 26,279 31,779 35,489 39,215 42,958 47,049Inventories 9,020 13,982 8,175 10,833 12,900 15,540 18,796 22,730 25,383 28,048 30,726 33,652
Prepaid expenses 1,033 1,387 1,307 1,567 1,880 2,254 2,703 3,242 3,887 4,662 5,591 6,704
Other current assets 4,944 4,451 5,069 5,069 5,069 5,069 5,069 5,069 5,069 5,069 5,069 5,069
Total Current assets 51,561 120,090 145,477 262,292 251,449 262,098 275,740 309,431 345,965 391,186 439,262 492,551
Equipment, furniture and leasehold improvements 3,685 7,712 6,209 3,856 2,671 2,394 2,684 3,355 2,807 3,623 4,113 4,586
Intangible assets 574 430 287 5,648 4,518 3,389 2,259 1,130 - - - -Goodwill - - - 8,665 8,665 8,665 8,665 8,665 8,665 8,665 8,665 8,665
Future income tax assets 4,366 5,337 4,144 4,144 4,144 4,144 4,144 4,144 4,144 4,144 4,144 4,144
Other long-term assets 18,754 1,935 - - - - - - - - - -
Total long-term assets 27,379 15,414 10,640 22,313 19,998 18,592 17,752 17,294 15,616 16,431 16,922 17,395
Total Assets 78,940 135,504 156,117 284,606 271,448 280,690 293,491 326,725 361,582 407,618 456,184 509,945
Balance Sheet
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
48
2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e
Current Liabilities Accounts payable and accrued liabilities 8,470 14,359 13,902 15,416 18,357 22,114 26,747 32,346 36,121 39,914 43,724 47,888Deferred revenue 205 546 891 1,657 1,973 2,377 2,875 3,477 3,883 4,291 4,700 5,148Demand instalment loan 5,776 4,642 3,295 - - - - - - - - -Short-term debt 5,995 1,614 163 200 - - - - - - - -Current portion of long-term debt 54 17 139 14,003 81 1 - - - - - -Current portion of warranty liability 4,899 12,222 12,082 12,467 14,845 17,884 21,630 26,158 29,211 32,278 35,359 38,727
Obligation to issue warrants 4,000 - - - - - - - - - - -Total Current liabilities 29,399 33,400 30,472 43,744 35,257 42,376 51,253 61,981 69,215 76,483 83,784 91,763Warranty liability 4,258 12,369 9,199 10,717 12,762 15,374 18,595 22,487 25,112 27,748 30,397 33,292Long-term debt 8 11,353 12,936 9,452 9,720 10,080 - - - - - -
Other long-term liabilities 1,496 4,821 5,271 36,977 51,906 69,417 89,789 113,362 140,547 172,969 210,104 252,682Total liabilities 49,144 74,546 71,222 100,891 109,644 137,247 159,637 197,830 234,873 277,201 324,285 377,737Share capital 258,202 311,855 376,710 492,529 492,529 492,529 492,529 492,529 492,529 492,529 492,529 492,529Other equity instruments 3,079 12,319 12,293 12,293 12,293 12,293 12,293 12,293 12,293 12,293 12,293 12,293Additional paid in capital 5,097 5,263 5,260 5,260 5,260 5,260 5,260 5,260 5,260 5,260 5,260 5,260Accumulated deficit (247,460) (271,885) (309,521) (326,520) (348,431) (366,792) (376,380) (381,340) (383,527) (379,818) (378,335) (378,026)Accumulated other comprehensive income 10,878 3,406 153 153 153 153 153 153 153 153 153 153
Total Shareholders' equity 29,796 60,958 84,895 183,715 161,804 143,443 133,855 128,895 126,708 130,417 131,900 132,208
Total Liabilities and Equity 78,940 135,504 156,117 284,606 271,448 280,690 293,491 326,725 361,582 407,618 456,184 509,945
Statement of Cash Flows
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
49
2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020eCash flows from operating activities
Loss for the year (10,315) (24,425) (37,636) (16,999) (21,911) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130
Items not involving cash
Depreciation and amortization 1,550 1,978 2,128 3,671 2,708 2,223 2,110 2,228 2,503 1,149 1,483 1,683 1,877
Joint Venture Partners' share of net income from joint ventures
5,564 4,221 7,453 8,591 9,857 11,123 12,389 13,655 14,921 16,187 17,453 18,719 19,985
Changes in non-cash operating working capital
1,795 16,349 3,028 (5,380) 2,066 2,634 3,570 3,776 2,264 2,149 2,008 2,096 972
Other (14,393) (7,399) 2,974 6,261 6,201 7,518 9,113 11,048 13,393 16,235 19,682 23,859 28,923
(15,799) (9,276) (22,053) (3,857) (1,078) 5,136 17,593 25,747 30,894 39,429 42,108 46,666 80,887
Statement of Cash Flows
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
50
2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020eCash flows from investing activities
Purchase of equipment, furniture and leasehold improvements
(1,081) (5,904) (256) (1,318) (1,523) (1,946) (2,399) (2,899) (1,955) (1,964) (1,973) (2,156) (2,356)
Long-term investments 17,977 19,379 3,811 - - - - - - - - - -
Loan receivable (6,774) (1,641) (4,789) (1,641) (2,889) (3,692) (4,552) (5,501) (3,709) (3,726) (3,743) (4,091) (4,470)
Other investing activities 7,150 (28,199) 8,753 - - - - - - - - - -
17,272 (16,365) 7,519 (2,960) (4,412) (5,638) (6,951) (8,400) (5,664) (5,691) (5,716) (6,248) (6,826)
Cash flows from financing activities Short-term debt 10,158 (6,413) (2,552) (3,258) (200) - - - - - - - -
Long-term debt (6,814) 13,891 (47) (135) (13,655) 280 (10,081) - - - - - -
Share issuance 1,041 53,024 59,999 115,819 - - - - - - - - -
Other financing activities - (9,259) (4,218) - - - - - - - - - -
4,385 51,243 53,182 112,426 (13,855) 280 (10,081) - - - - - -
Increase in cash and cash equivalents
5,858 25,602 38,648 105,610 (19,345) (222) 562 17,347 25,230 33,738 36,391 40,419 74,061
Cash and cash equiv, beginning of year
23,081 22,762 82,619 105,851 211,461 192,116 191,894 192,455 209,803 235,032 268,771 305,162 345,581
Cash and cash equiv, end of year
22,762 82,619 105,851 211,461 192,116 191,894 192,455 209,803 235,032 268,771 305,162 345,581 419,642
Management Compensation
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Name Position WPT Start Date
Total Compensation
Exerciseable Options
Unexercisable Options
John A Beaulieu Chairman Sep-97 246,154
David Demers CEO/Co-Founder
Mar-95 805,313 950,557 639,296
William Edward Larkin
CFO Feb-10 246,154
Elaine A Wong Exec VP: Strategic Development
Sep-01 495,124 316,410 581,168
Nicholas C Sonntag
Exec VP: Corporate Development
Oct-06 584,997 111,818 181,038
Darren Seed VP: Investor Relations & Comm
Melih Ogmen VP: Fuel Systems & Supply Chain
449,271
W Chipman Johnston
Secretary
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Extensive Experience
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Sara Liao SauFormer Secretary for the Environment, Transport and Works of Hong Kong
John Beaulieu, ChairmanExperienced in financing and assisting growth of more than 70 emerging technology firms
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Board of Directors – Key Members
Extensive Experience
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Dezsö J. HorváthDean of Schulich School of Business, York University, named AIB International Den of the year
M.A. Jill BodkinFounding Chair of the British Columbia Securities Commission, Former Ernst & Young Corporate Finance Partner
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Board of Directors – Key Members
Extensive Experience
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Bill. E. Larkin,CFOFormer CFO of Fuel Systems Solutions, Inc. and DDi Corp., auditor at Deloitte & Touche LLP
David R. Demers, CEOCEO since 1995, background in both physics and law, on board of directors from Primero Mining Corp. and CWI
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Management
Elaine A. Wong, Exec. VPFormer CFO of Westport, extensive experience in international strategic planning in Canada and Asia
Nicholas C. Sonntag, Exec. VPPresident, Westport Asia and Europe. Former President of CH2M Hill in China and Canada,
W. Chipman JohnstonCorporate Secretary for Westport, Partner of Bennett ones LLP, experience in M&A
Business Overview
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
• Develops technologies which convert diesel engines to run on natural gas.
• Establishes partnerships with OEM’s
• Operates globally but currently derives majority of revenue from US market which only makes up 1.3% of NGV market.
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Partnerships
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Partnerships
Global Engine Producers Rank Partnership
Weichai 1 YES
Volvo 2 YES
Diamler 3 -
Cummins 4 YES
CNHTC 5 -
Global Truck Producers Rank Partnership
Daimler 1 YES
Volvo 2 YES
Dongfeng 3 YES
Tata 4 YES
FAW 5 -
Source(s): Westport November Presentation, AutomoticeWorld.com
• Established partnerships with industry leaders
• Only profitable venture is CWI
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Going Green
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Figure 5.4 Fossil Fuel Emission Levels (Lb / Billion Btu of Energy Input)
Pollutant Natural Gas Oil Coal
Carbon Dioxide 117,000 164,000 208,000
Carbon Monoxide 40 33 208
Nitrogen Oxides 92 448 457
Sulfur Dioxide 1 1,122 2,591
Particulates 7 84 2,744
Mercury 0 0.007 0.016
Source: EIA - Natural Gas Issues and Trends 1998
“…natural gas is the cleanest fossil fuel and a highly efficient form of energy.” ~pickensplan.com
• Worldwide use of natural gas vehicles has grown 27.5% per year since 2000.
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US Truck Market
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Thousands of Trucks1992 1997 2002
Light Trucks (in thousand lb)
Less than 6 lb 50,545.7 62,798.4 62,617.3
6 to 10 lb 4,647.5 5,301.5 17,142.3
Medium Trucks (in thousand lb)
10.0 to 14.0 lb 694.3 818.9 1,142.1
14.0 to 16.0 lb 282.4 315.9 395.9
16.0 to 19.5 lb 282.3 300.8 376.1
Light-heavy Trucks (in thousand lb)
19.5 to 26.0 lb 732.0 729.3
Heavy Trucks (in thousand lb)
26.0 to 33.0 lb 387.3 427.7 436.8
33.0 to 40.0 lb 232.6 256.7 228.8
40.0 to 50.0 lb 338.6 399.9 318.4
50.0 to 60.0 lb 226.7 311.4 326.6
60.0 to 80.0 lb 781.1 1,069.8 1,178.7
80.0 to 100.0 lb 33.3 46.3 68.9100.0 to 130.0 lb 12.3 17.9 26.4
130.0 lb or more 4.6 5.9 6.3
Not reported <50 <50 NA
ALL trucks 59,200.8 72,800.3 85,174.8Source(s): 1992, 1997, 2002: U.S. Census Bureau
• 42% increase in overall number of trucks during ten year period.
• 28% increase in Heavy Trucks.
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Competitors
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Westport Innovations Business Units
Heavy Duty Medium Light dutyR&D
ServicesWestport HD CWI Juniper Westport
Weichai, Volvo, Daimler, Cummins Advanced Fuels Technologies,
PrinsAutogassystemen Fuel Systems Solutions Inc. Landi Renzo
Revenues ROEWestport 130,710,000 -51.61Competitors Diesel Weichai 14,425,690,000 34.5Volvo 193,063,000,000 -19.57Daimler 26,808,000,000 -8.59Cummins 6,405,000,000 12.22Natural Gas Fuel Systems Solutions 453,320,000 25.1Landi Renzo 270,770,000 16.8
*Data in USD for FY 2009
Source: Bloomberg
Westport faces robust competition from established diesel engine manufacturers
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Operating Efficiency
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Sharp decline in contribution margin in 2010 due to: New emissions standards, requiring redesigned
components Transition to new suppliers
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Early Advantage
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Founding at UBC Westport’s Advantages
Early to market Highlight of some tech
Relationships Partners / Suppliers Customers
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Competitive Analysis
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
62
Government Incentives
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Income tax credits for natural gas refuelling equipment
Excise tax credit to seller of CNG or LNG Income tax credits for alternative fuel
vehicles NAT GAS Act
“I think that the odds are low in a lame duck session” David Demers, CEO (Q2 2011 Earnings Call)
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High Internal Risk
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Financial risks High R&D costs Takeover risk due to excess cash
Adoption risks Lack of infrastructure Psychology risk
Technology risks R&D and intellectual capital expiration New technology
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High External Risk
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
Management risk High exposure to JV and partnership risk
Legislative and environmental risk Demand affected by natural gas act
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Free Cash Flow
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
66
2010 2011 2012 2013 … Terminal2020
After-tax operating earnings (28,904) (7,015) (12,391) (7,795) 36,722
Less: Changes in non-cash working capital (3,400) (13,748) (13,292) (16,991) (14,723)
Less: Cap Ex - Depreciation (1,872) (2,353) (1,185) (277) 479
Free cash flow to firm (23,632) 9,086 2,086 9,473 50,967
Break-Even Point
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
67
Continued revenue growth and operating efficiency improvements lead to break-even in operating earnings by 2015
Net income could become positive by 2017
Leasing Program
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
68
Global Relationships
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
69
Vancouver
Vancouver
Sweden
China
Stock Price Movement
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
70
Natural Gas Consumption
Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.
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