福特汽車 (F) 2010 Q2 法說會逐字稿

Great day, ladies and gentlemen, and welcome to the FCE Bank PLC 2010 interim financial results conference call. My name is Katina and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this presentation. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Shawn Ryan, Manager Fixed Income Investor Relations, Ford Motor Company. Please proceed.

Thank you, Katina, and good day. Welcome to all of you who are joining us either by phone or webcast. On behalf of the entire FCE Bank management team, I would like to thank you for spending time with us today.

With me today are Peter Jepson, FCE Bank's Executive Director, Finance and Strategy, and Sam Smith, FCE's Treasurer.

Before we begin, I would like to review a couple of quick items. A copy of the slides we will be using today have been posted on Ford Motor Company's investor website for your reference. Also on FCE Bank's investor website, our annual report and accounts for the year ended December 31, 2009, the interim report and financial statements for the half year ended June 30, 2010, and Basel II Pillar 3 disclosure document 2009.

The slides and discussion today will be on FCE Bank only. Please feel free to contact me after this call if you have any specific questions related to Ford Motor or Ford Credit.

With that, I would like to turn the call over to Peter Jepson. Peter?

Thank you very much, Shawn. I would also like to thank everyone for making the time to join today's call. This is FCE's third call of this kind. We started to host these calls as part of a program to supplement FCE's investor communications. And in that vein, I would also like to mention that we plan to start providing quarterly management statements for the periods between our annual and interim reports. The first one of these reports will cover the period ending September 30 and will be issued later this year.

But the purpose of today's presentation is to brief you on FCE's 2010 half year results. I'm going to come to this shortly after a quick refresher on what FCE is about. So let's start by turning to slide 1.

Although FCE is wholly owned by Ford Motor Credit, it is incorporated in the UK as a Public Limited Company in its own right. FCE is regulated by the UK Financial Services Authority, and with that independent regulatory oversight, FCE is required to meet stringent requirements for liquidity, capital adequacy and large exposure.

On FCE's Board of Directors there are four independent nonexecutive members. They provide objective oversights and fulfill key roles in corporate and regulatory accountability. Headquartered in the United Kingdom, FCE is a Pan-European bank that operates directly in 15 European countries. In 12 of these countries, FCE operates through a branch structure authorized under the EU second banking consolidation directive. And in a further three of the countries, Poland, Czech and Hungary, FCE operates through subsidiaries.

Finally, the Nordic markets are served by Forso which is a regulated Swedish Company jointly controlled and owned by FCE and CA Consumer Finance, which is an affiliate of Credit Agricole. Forso is included in FCE's accounts on an equity accounting basis. In other words, the equity is not consolidated on FCE's balance sheet.

Slide 2 describes what FCE does. FCE Bank has a consistent and straightforward aim that its employees and partners clearly understand and that is to support Ford of Europe's vehicle sales while returning value to its shareholder.

FCE's customers are the Ford national sales companies in each market, the Ford dealerships throughout Europe, and of course, the retail and corporate customers who are buying Ford vehicles and who need finance or insurance to do so.

At the right-hand side of the slide, you can see a broad analysis of FCE's portfolio of loans outstanding at mid year 2010 and that provides a good summary of what FCE does. The dealer portfolio is primarily where FCE makes available loans to dealers to finance wholesale vehicle stocks. Whereas retail refers to loans and leases to end customers.

I would like to point out that substantially all FCE's lending is secured and that is typically achieved through transferring the financed vehicle to FCE by way of security.

Turning to slide 3, FCE's priorities include executing a funding plan that provides a balanced approach on liquidity and cost effectiveness; maintaining consistent and effective risk management practices; and ensuring a competitive cost structure appropriate to a smaller scale.

Now turning to the 2010 interim report, I would like to start on slide 4 with a summary of the performance in the first half of 2010. We will go into a little more detail on these items further on.

FCE delivered pretax profits of GBP140 million in the first half of 2010. That was an increase of GBP69 million over the same period last year. This improvement is due mainly to a significant reduction in credit losses, corresponding lower loss provisions and also lower vehicle residual value losses.

FCE is on track to deliver its 2010 funding plan and its core Tier 1 Capital ratio is at 18.5%. Last, not least, FCE's balance sheet continues to be inherently liquid.

On the next slide, you can see the outstanding net loans and advances on the balance sheet over time and this split between Ford and the other automotive brands that we have supported. On the left-hand side, you can see the receivables in pounds sterling as they are presented in FCE's reports. This shows a small decline up to 2006, then growth in 2007 and 2008, before a sharp fall in 2009. However, this picture is impacted by changes in exchange rates. In particular, with the strength of the euro peaking in 2008.

So although FCE reports in pounds sterling, much of its activities are in continental Europe. As a result, volatility in the euro sterling exchange rate has a significant impact on the sterling value of FCE's balance sheet. So to provide a clearer picture of the underlying trend, I am showing the same information converted to euro on the right-hand side of this slide.

So presented in euro, the declining size of the balance sheet can be seen more clearly. This also shows very clearly the decline in the loans outstanding balance that relates to the non-Ford brands which is shown in the darker section at the top of the bars. At the end of June 2010, receivables from Mazda, Jaguar, Land Rover and Volvo customers accounted for a total of 7% of the total receivables.

Just going back to sterling, by the end of this year, FCE expects total net loans outstanding to be in the range of the GBP10 billion to GBP11 billion.

Turning now to slide 6, this show's FCE's relative geographic weightings. The chart highlights the importance of the German and UK markets. Also the reduction in financing undertaken in the Spanish markets. As you can see, the combined exposure to Italy and Spain is about 20% and within the other category, which is analyzed further on the right-hand side, you can see that the exposure to Portugal, Greece and Ireland is very limited.

Now I will pass you over to Sam who will cover liquidity funding and capital.

Thank you, Peter. I'll began on slide 7 by covering the liquidity profile of FCE's balance sheet. In this chart, the light bars on the left show the contractual maturity of FCE's total on balance sheet receivables and cash. The darker bars on the right show the contractual maturities of FCE's liabilities. As can be seen in all-time buckets, more assets are liquidating than debt meaning that the balance sheet is inherently liquid.

Slide 8 details the sources of liquidity available to FCE. In the top box, capacity is shown across FCE's various sources of liquidity which include unsecured credit facilities, committed securitization capacity, and cash. Across these sources, at June 30, 2010, FCE had a total of GBP8 billion in total capacity in cash. After adjusting for securitization capacity that exceeds eligible assets and cash not available for use in day-to-day operations, the majority of which relates to securitization, FCE had total liquidity of GBP5.4 billion.

The bottom box shows the utilization of this liquidity with the difference representing liquidity available for use. At June 30, 2010, this totaled GBP1.6 billion. In addition to this, the GBP1.3 billion of securitization capacity in excess of eligible receivables provides flexibility in funding future originations, or shifting capacity to different markets and asset classes.

Turning to slide 9 and remaining on the topic of liquidity, I will briefly cover how FCE monitors and manages its liquidity. FCE conducts regular stress tests in order to identify sources of potential liquidity strains and confirm the adequacy of its liquidity sources. FCE also operates a liquidity management information system which provides daily and forward-looking information on its liquidity position. This information is used to project over an appropriate set of time horizons cash flows arising from its assets and liabilities. These processes form an integral part of FCE's overall risk management and support regulatory obligations.

Turning to slide 10, I will cover funding. As Peter mentioned, FCE's funding plan is on track. First, the public markets. In June 2010, FCE issued a GBP0.4 billion public securitization involving its German retail loans. This transaction continued a trend of improvement in spreads despite the volatility in the markets at the time.

In July 2010, FCE accessed the unsecured market under its EMTN Program, raising GBP0.3 billion. On the private side in the first half of 2010, FCE renewed or added GBP1.8 billion of its private securitization capacity, GBP0.8 billion of which included revolving periods of two or more years. Increased appetite from FCE's lenders for longer-term commitments is a sign of continued improvement in the securitization markets.

Finally, FCE continued to reduce its European Central Bank funding of retained securitization notes with a balance outstanding of GBP0.3 billion as of June 30, 2010. As mentioned before, the reduction has come primarily from the sale of previously retained notes to traditional public term securitization investors.

Slide 11 shows the funding mix supporting FCE's balance sheet. Keep in mind that as Peter mentioned, the balance sheet is reported in pound sterling terms and is impacted by exchange rate movements, which can be seen most clearly in 2008.

Looking at the individual components of FCE's funding mix, intercompany debt, which is represented by the dark bar at the top of the chart continues to decline consistent with FCE's strategy. In June 2010, the remaining intercompany funding consisted primarily of collateralized deposits to mitigate exposure concentrations and Tier 2 capital in the form of subordinated debt.

In July 2010, FCE repaid GBP177 million of subordinated debt, the majority of which was scheduled for repayment later in the year. Finally, securitization continues to play a key part in FCE's funding strategy given its present credit ratings.

I would also like to mention here that all of FCE's securitization transactions are on balance sheet and done solely to support funding requirements.

Slide 12 provides an overview of FCE's capital. FCE's core Tier 1 Capital ratio was 18.5% at June 30, 2010 down from 21.9% at year end. The reduction is due primarily to FCE's dividend payment of GBP390 million which reflects FCE's plan to gradually reduce its capital base with the reduced scale of its business while taking account of the funding and liquidity environment. Please also note that Tier 1 Capital does not yet include the first-half earnings which are unaudited.

Based on present assumptions, FCE expects to pay a similar dividend in 2011. Thereafter, dividends are expected to be smaller.

Slide 13 shows FCE's credit ratings. Consistent with improvements at both Ford Motor Company and Ford Credit, FCE's ratings have been upgraded recently by each of the agencies that rate its debt. At present, Standard & Poor's assigns a one notch positive differential to FCE compared to Ford Credit. While the ratings from Moody's and Fitch are equivalent for FCE and Ford Credit.

Now I will hand it back over to Peter who will discuss the first-half performance in more detail.

Thank you, Sam. With slide 14, we turn back to our lending portfolio and over the next few slides focus on credit loss performance. This chart shows the improvements in the net credit loss ratio or loss to receivables ratio that has been experienced during the first half of 2010. In this period, you can see that it has reduced to 0.37% or 37 basis points. As you can see, credit losses have returned to within historical norms after the significant increase seen last year which resulted from the severe economic recession in Europe.

The next slide breaks this performance down by market. As can be seen here, all markets have demonstrated an improvement in credit loss ratios during the first half. As I mentioned on previous calls, FCE implemented a series of actions aimed at improving credit losses which included more restrictive underwriting in certain markets and increased prioritization of resources in account servicing and collections.

Improved recoveries have also played a role in the overall reduction in net credit losses. At the point that we write down our accounts, we book a loss based on including an expected recovery value from the underlying vehicle asset. As conditions and used vehicle markets in particular have improved, our actual recoveries have exceeded our initial assumptions.

All these factors combined with the improved macroeconomic conditions in a number of markets has led to the improvement in credit losses that we expected to see.

Let's focus on Spain for a moment, the improvements in performance reflects the nonrecurrence of an exceptional loss in the rental sector that was experienced last year. However, conditions in Spain have been exceptionally severe for a couple of years now, particularly in the tourism and construction sectors and the loss ratio still remains relatively high as a result.

Slide 16 shows the trend of monthly delinquency in FCE's retail portfolio over the last five years. It shows the percentage of retail contracts which are 30, 60 and 90 days overdue. Not all 60-day past due accounts flow through to 90 days and fewer still flow through to actual loss.

FCE believes that it is responsive approach to underwriting servicing continues to ensure that the portfolio performs well throughout the economic cycle. The graph highlights that delinquencies peaked in mid 2009 and have now returned to what we consider historical norms.

Slide 17 shows the key performance data of FCE for the first half year 2010 and I would like to cover some of these metrics. First, margin has strengthened as FCE has prioritized profitability over volume. Second, the cost efficiency ratio shows a slight deterioration. While absolute cost reductions have been achieved, these did not quite keep pace with the reduction in the size of the portfolio.

Additionally, as I mentioned earlier, FCE has prioritized resources engaged in risk management and collections in view of the external environment. Achieving a cost structure that is appropriate for its smaller scale remains an important focus and FCE has robust plans in place for the future.

Finally, as I have already covered credit losses, moving to the bottom, FCE's return on equity has increased primarily reflecting the improved profitability and the slightly lower equity level.

Slide 18 shows the trend of pretax profits over the last two years. The green or light bars show the reported profits and the darker blue bars show the adjusted profits. Our purpose in showing the adjusted profit is purely to help by sharing what we regard as the underlying profits after taking out exceptional items and all the adjustments are detailed in note nine to the accounts.

Adjusted profits before tax in the first half of 2010 were GBP140 million, up GBP50 million compared with the prior year. The guidance on the outlook in 2010, FCE expects its adjusted pretax profit to be higher than that experienced in 2009. This reflects mainly the improved credit loss performance partly offset by reduced portfolio size.

On that note, on the future, I will move to the final slide, slide 19, to recap FCE's performance in the first half of 2010. From the bottom up, FCE's balance sheet remains inherently liquid, core Tier 1 Capital is at 18.5%. FCE is on track to achieve its funding plan for 2010. Credit losses have returned to within historical norms and not least, FCE delivered a pretax profit of GBP140 million in the first half of 2010, almost double the same period last year.

Thank you and back to Shawn.

Thank you, Peter. Ladies and gentlemen, we're going to start the question-and-answer session now. Katina, can we please have the first question?

Thank you. (Operator Instructions) Stephanie Renegar, JPMorgan.

Hi, Stephanie Renegar from JPMorgan. Just had a couple of questions for you. First of all on the credit ratings, you guys have obviously showed a pretty positive trajectory along with your parent over the past couple years. Congratulations. I wanted to ask you about your conversations with the rating agency because obviously you have some competitors that experienced at least a two notch differential between their captives and the OEMs. And just what their rationale is for keeping basically -- on the S&P side I think it is two notches, but just one notch at Moody's. And just wondering how those conversations were going there?

Also, on the securitization side just some of the public and private transactions that you have been able to get done. Have you seen any -- over the past year -- a return to the normal investor base that you had seen before the crisis? Or is this just basically the same group of investors turning paper over? Was just wondering about if that mix of investors had gotten any deeper as we get out of this funding environment?

And you also said that just conditions on used vehicles had gotten better. Just wondering if there were key regions that you could highlight where the performance in used vehicles had gotten better? I saw in the UK that they have improved materially, but just specifically wondering even on some of the more troubled spots like Spain and some of the bigger regions like Germany. And that's it for me.

Hi, Stephanie. This is Sam. Why don't I cover the first two and then I will pass it over to Peter to cover the third question. First, I guess with credit ratings, the question is probably best directed to the rating agencies. We do -- we are recognized by S&P looking at their reports as having a capital base and access to independent securitization funding and a regulated status that justifies the one notch differential. Obviously we would be interested in a higher differential, but it is probably a question that should go to them. That has been part of our dialogue.

On the second question, let's probably handle that separately, the public versus the private. On the public side, as you know, we were reliant on European Central Bank funding for our transactions during the height of the crisis. As we have termed those out, those have gone to what you would consider traditional term securitization investors.

I wouldn't say that we have approached the depth that we had prior to the crisis. Europe in particular I think had a huge amount of its securitization investor base sort of fall victim to the crisis. So it is improved, but not where it was.

On the private side, we have continued to do business predominately with global relationship banks and that group has been fairly sticky over the crisis, so that piece really hasn't changed.

We have seen improvement in spreads. You have seen the improvement on the public side. It is probably fair to say that the improvement on the private side generally falls in line with what we have seen publicly.

Okay. Thanks, Sam. Hi, Stephanie. Peter here. On the used vehicle prices, we have seen recovery generally. The most marked ones from our point of view were in the UK, where I think you might recall luxury car prices were particularly badly hit by the oil price spike. I think that was 2008. They subsequently recovered strongly. Since then we have seen used vehicle prices in Britain continue to firm.

Used vehicle prices have also improved in Germany generally. And perhaps most markedly, Spain, which was from a very low base. I think the characteristic in Spain was that there really wasn't a developed used vehicle market, and we have seen partly in response to the crisis that that the used vehicle market has been developing in Spain and we are personally finding it much more straightforward to remarket used vehicles in Spain.

I think partly because of the recession I think consumers are -- some consumers have moved away from buying new cars, are looking for used cars. But overall generally improvement but those are the three that I would highlight.

Okay. Thanks very much. Just one last question if I may, if you have time. Just looking at -- scrappage incentives and how they have changed. The supply and demand dynamics, have you seen any change in kind of the customer quality dynamics related to those schemes and how much customers are putting down as far as their vehicle? Or is that something that you guys control versus more versus the customers and how you are dealing with those relationships?

Yes, I think that is something that we control more. I think we clearly have seen a shift in customer makeup in the overall market. With the scrappage incentives we found in almost all markets, the mix of private retail consumer increased versus fleet customers. And since the end of the scrappage incentives that shift -- that mix has moved back again. So -- and that has had quite a big influence in the markets and also affects our volumes because we are mainly aimed at the retail consumer. But as far as purchase quality is concerned, we have not noticed any discernible trend.

All right. Thank you very much. Appreciate it.

Thank you, Stephanie.

(Operator Instructions) [James Doran], Morgan Stanley.

Hi there. Thanks. Good afternoon. Three questions, please. The first one is, in terms of staffing and employment, can you just remind us is there any further restructuring to come as the balance sheet continues to reduce, or is that now all done?

Second question is, could you give us any even anecdotal indications as to how loss ratios have developed since the end of the reporting period, so in July and August, perhaps especially in Spain?

And then the last question, could you just remind us when exactly the Jaguar Land Rover, Mazda and Volvo portfolios will actually wind down completely so in terms of when they roll off in 2010, 2011 and 2012? That would be great. Thanks.

Hi, James. Let me take those questions. Peter here. In terms of restructuring, though, I would say that we are far from over on restructuring. We will probably continue to restructure on a gradual basis over the next four years. So country by -- we are not going to do every country every year, but somewhere over Europe we will be restructuring over the next four years.

On loss ratio, since we filed this report, the trend has been flat. And in terms of Jaguar Land Rover, and I would say Mazda and Volvo are included in that, we mentioned in the presentation that it's about 7% of the loans outstanding related to these brands and you should expect those to have virtually rolled off by the end of 2012.

Okay, great. And is it sort of an equal in terms of 2010, 2011 and 2012, would it be sort of roughly equal? I think it is GBP800 million net, so would that be sort of roughly 250 to 300 per year?

Sort of declining balance so it is not arithmetically equal each year. There will be more in the nearer period.

Fine. Understood. Thanks very much.

Thanks, James.

With no further questions in queue, I would now like to turn the call back Mr. Ryan for any closing remarks.

Thanks, Katina. Ladies and gentlemen, if we don't have any more questions, that concludes today's call. Thank you for joining us.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.