福特汽車 (F) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the FCE Bank plc's 2011 interim financial results conference call. My name is Crystal and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) Today's call is being recorded.

I would now like to turn the conference over to your host for today, Mr. Shawn Ryan, Manager of Fixed Income Investor Relations. Please proceed, sir.

Thank you, Crystal, 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 and FCE's investor website for your reference. Also, on FCE Bank's investor website are annual report and accounts for the year ended December 31, 2010, the first-quarter 2011 management statement, Interim Report and accounts for the half-year ended June 30, 2011, and Basel II Pillar 3 Disclosure Document 2010.

Also I would like to remind everyone that 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, Shawn. The purpose of today's presentation is to brief you on FCE's 2011 interim results. But first I would like to start with a refresher of what FCE is about.

So, 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.

FCE is a pan-European bank headquartered in the United Kingdom and operates directly in 15 European countries. In 12 of those countries FCE operates through a branch structure, which is authorized under the EU's second banking consolidation directive, and in a further three -- Poland, Czech, and Hungary -- through subsidiaries.

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

Slide 2 describes what FCE does. FCE's Bank's aims are to support Ford of Europe's vehicle sales, while being consistently profitable. 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.

On the right-hand side of the slide you can see a broad analysis of FCE's portfolio of loans outstanding as at June 2011. That provides a good summary of what FCE does.

Wholesale means lending to dealers, and that is primarily made available 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.

Now, slide 3 underlines the strategic advantage that FCE brings to Ford as its captive finance operation in Europe and is provided to give you further insight into synergies achieved in our financing model. FCE gains from the relationship with Ford through the use of the brand; access to the dealer points of vehicle sale; and the support of exclusive Ford marketing programs.

Ford gains through dedicated and consistent financial services support; the skills FCE brings in terms of understanding the financial condition of its dealers; and enhancing the relationship with the customers. And of course, FCE profit over time contributes to the dividend payments, which ultimately support investment in future new vehicles and technology.

Turning to slide 4, FCE's strategic priorities include continuing to effectively and consistently manage risk; execute a funding strategy that provides a balanced approach on liquidity and cost effectiveness; ensure a competitive operating cost structure; invest in customer-facing technology; and also align closely with Ford marketing and sales activities. Through the first half of 2011, FCE's take to market actions have played an important role in supporting the launch of the new Ford Focus and C-Max.

Now I would like to turn to the 2011 Interim Report itself, starting on slide 5 with a summary of the first six months. We will go into more detail on all of these items later on.

Pretax profits were GBP107 million, down GBP33 million on the same period last year. This was mainly the result of FCE holding higher levels of liquidity and the impact of a lower average portfolio size.

In addition, to reduce liquidity costs FCE took the opportunity to repurchase early some of the debt that matures early next year. That had the effect of pulling ahead related costs from the second to the first half of the year.

FCE is well on track in delivering its 2011 funding plan. FCE's balance sheet continues to be inherently liquid, and the Tier 1 capital ratio was strong at around 19%.

On the next slide, slide 6, you can see outstanding net loans and advances on the balance sheet over time and the split of those outstanding between Ford and the other automotive brands. On the left-hand side you can see the receivables in pounds sterling as presented in FCE's Interim Report.

However, much of FCE's activities are in Continental Europe, and sterling weakened materially between 2007 and 2008. As a result, the decline in FCE's balance sheet can be much better identified when looking at the same data translated into euros; and that is shown in the chart on the right-hand side.

Looking there, you can see that much of the reduction in balance sheet size relates to Ford's strategic exit from Jaguar Land Rover and Volvo and also the separation of activities with Mazda. Of these portfolios only EUR0.4 billion remained at the end of June 2011, which is equivalent to now only about 3% of the portfolio.

Ford assets also reduced through the recession. But FCE now sees the opportunity for future growth in its financing share of Ford sales. We will also benefit from any recovery in European automotive vehicle industry volumes. Based on present assumptions, FCE expects total net loans and advances to be in the range of GBP10 billion to GBP11 billion at the end of the year.

Turning now to slide 7, this shows FCE's relative geographic weightings. The chart highlights the importance of the German and the UK markets; and also the reduction in financing undertaken in the Spanish market.

As you can see, the combined exposure to Italy and Spain is about 18%. Within the Other category, which is analyzed in more detail on the right-hand side, you can see that the exposure to Portugal, Greece, and Ireland is very limited. Combined exposure to these three markets was less than 3% at June 2011.

Also of topical interest, FCE does have some limited exposure to the Middle East and North Africa region, although this is all within FCE's Worldwide Trade Finance division. The total exposure for this division is also shown at the right-hand side, just over 3%. We do finance importers in Saudi Arabia, Israel, Egypt, and Morocco, where the majority of the credit risk is held by third parties.

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

Thank you, Peter. As Peter mentioned, FCE is on track to deliver its 2011 funding plan. The first half, FCE completed GBP0.9 billion of new issuance in the public asset-backed and term debt markets. On the private side, FCE renewed or added GBP1.2 billion of private securitization capacity and entered into a new three-year GBP440 million syndicated unsecured revolving credit facility.

This solid progress on the 2011 funding plan leaves FCE well positioned as the capital markets have entered a period of heightened volatility.

Slide 9 shows the funding mix supporting FCE's balance sheet. Securitization continues to play a key role in FCE's funding strategy, given its present credit ratings. FCE aims for diversification in its securitization activity, with about 25 active transactions providing term funding or committed capacity for each of its primary asset classes across a wide range of European markets.

All of FCE's programs provide for matched funding of the receivables, with securitization debt having a maturity profile similar to the related receivables. All of FCE's securitizations are on balance sheet, completed solely to support funding requirements.

At June 30, secured debt was 54% of net loans and advances, an increase compared to year-end 2010. As mentioned in our last call, the mix of secured debt was temporarily lower at year-end 2010 as a significant amount of FCE's liquidity was held in the form of unutilized committed securitization capacity.

At the end of 2011, we expect secured debt to be in the range of 54% to 60% of net loans and advances. Thereafter, we expect that this ratio will fall over time, due to our ability to source term funding from the unsecured markets on increasingly favorable terms.

Slide 10 outlines FCE's 2011 public term funding plan. As I mentioned before, FCE completed GBP0.9 billion of public term funding in the first half of 2011, including an unsecured debt issuance of GBP0.4 billion and a securitization of GBP0.4 billion. The securitization, Globaldrive 2011-A, securitized German retail loans and included for the first time a Section 144A offering to US investors.

FCE's full-year 2011 public term funding is projected to be in the range of GBP0.9 billion to GBP1.3 billion, with any additional issuance this year depending on market conditions.

Remaining on the topic of unsecured debt, as Peter mentioned, during the second quarter through private market transactions FCE repurchased a principal amount of GBP165 million of debt scheduled to mature in January 2012. This had the effect of pulling ahead related costs from the second half of the year into the first half, which Peter will cover in more detail later.

Going forward and based on market conditions and our liquidity position, we may consider other repurchases as an economically favorable use of our available cash.

Slide 11 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 FCE had GBP7 billion in total capacity and 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 GBP5.3 billion. The bottom boxes shows the utilization of this liquidity, with the difference representing liquidity available for use. At June 30, this totaled GBP2 billion.

In addition to this, the GBP0.8 billion of securitization capacity held in excess of eligible receivables provides flexibility in funding future originations or in shifting capacity to different markets and asset classes.

Slide 12 provides an overview of FCE's capital. FCE's Tier 1 capital ratio was about 19% at June 30.

In June of last year, FCE paid a dividend of GBP390 million; and in May of this year FCE paid a dividend of GBP370 million. These dividend payments were consistent with FCE's strategy to gradually align its capital base with the reduced scale of its business, while taking into account the funding and liquidity environment. Based on present assumptions, FCE expects to pay a dividend in 2012 that is smaller than those paid in 2010 and 2011.

Slide 13 shows FCE's credit ratings, which are unchanged from our last update in March. Standard & Poor's continues to assign a 1-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'll hand it back over to Peter, who will discuss the first-half performance in more detail.

Thanks, Sam. With slide 14 we turn back to our lending portfolio and now focus on credit loss performance. This chart highlights the improvement in credit losses that we saw in 2010 has continued into 2011 and improved further.

The next slide shows this broken down by major markets. As can be seen here the improved credit loss ratio, as witnessed in all markets in 2010, have continued into this year.

As I mentioned on previous calls, FCE implemented a series of actions aimed at improving credit losses which included increased monitoring; in some markets more restrictive underwriting; increased prioritization of resources to risk management, account servicing, and collection activities. 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 an expected recovery value from the underlying vehicle asset. As used vehicle markets have improved, our actual recoveries have exceeded our initial assumptions.

Although the loss ratio in Spain is improving, it remains high relative to other FCE markets. Economic conditions in Spain continue to be weak, but the ratio is exaggerated as the size of FCE's portfolio is declining so sharply in that market.

Slide 16 shows the key performance data for FCE. First, FCE's margin reduced compared to the same period in 2010, primarily reflecting the adverse impact of debt repurchases in the period and the cost associated with holding higher liquidity levels in the first quarter of 2011. As that repurchased debt was near maturity, the associated premium paid and carrying value adjustments will be more than offset in the second half of 2011.

Second, FCE's cost efficiency ratio shows a slight deterioration. That reflects the reduction in average loans and advances from the prior period, partly offset by cost efficiency actions. Achieving a cost structure that is appropriate for its smaller scale remains an important focus, and FCE has robust plans in place.

I covered credit losses on previous slides; and so turning to the return on equity, that reduced from the same period last year, reflecting the lower profit before tax and a higher effective tax rate during the period. This was partly offset by the reduced average equity level arising from the dividend payment.

Slide 17 shows the trend of pretax profits over the last five years. The green or light bars show the reported profits; and the darker blue bars show the adjusted profits.

The purpose of showing these adjusted profits is purely to help you by sharing what FCE management regards as the underlying profits after taking out exceptional items. Those adjustments are detailed in page 6 of the Interim Report.

On the next slide, I will cover an explanation of the reduction in adjusted profits in the first half of 2011 compared with the first half of 2010 by main causal factor. Guidance on the outlook -- in 2011 FCE expects its adjusted profit before tax to be lower, reflecting the reduced portfolio size and lower reduction in portfolio loss reserves. However, favorable trends in credit loss performance and borrowing spreads are expected to continue.

Moving to slide 18, the right-hand side of the chart shows the main profit variances in the first half compared with the same period last year. The main adverse factor was a reduction in net interest income of GBP34 million, and this is explained in more detail as follows.

Volume-related impact on interest income was GBP12 million unfavorable, reflecting the lower portfolio size. The impact of holding higher liquidity levels was GBP11 million. The repurchase of near-maturity public debt had the effect of accelerating interest expense from the second half of 2011, and that was also GBP11 million in the first half. As I mentioned earlier, this will be more than offset in the second half.

Net fees and commission income were GBP7 million unfavorable, again reflecting the lower portfolio size. At the end of the chart there, you see the favorable impact on profits of the improvements in credit losses and operating efficiency.

I will now move to the final slide, slide 19, to recap FCE's interim performance in 2011. From the bottom up, FCE's Tier 1 capital ratio was strong at about 19% at June 30. The balance sheet remains inherently liquid. FCE's funding plan for 2011 is well on track. Credit losses are low and continue to improve. And overall, FCE delivered a pretax profit of GBP107 million in the first half of 2011.

Thank you, and back to Shawn.

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

(Operator Instructions) Stephanie Renegar, JPMorgan.

Hi, how are you guys doing? I was just wondering; I had a couple questions. The first one is on the debt repurchase and the second two are related to the balance sheet and mix of funding; and some outlook comments would be great.

On the debt repurchase, I've had some questions from clients just in regards to when exactly -- you know, which month were those bond repurchases made for 2012? As well as -- you have made some comments about possibly undertaking some future repurchasing actions if you have excess cash. Just from our side, I am just wondering if that could possibly include the 2013s as well, since those were also issued at pretty high interest rates during the depths of the crisis.

Then just on the balance sheet, I did notice -- and I apologize if this is within the filing or within the FMCC filing, but your obligations due to parent and relating undertakings went up by about, I think it was around GBP300 million from Dec '10 to June 2011. Was just wondering about the movement there.

Also on your funding plans, you had lowered your outlook for public securitization as well as your unsecured borrowings. Is that a function of a change in the mix of borrowings? Or is that your outlook for future receivables coming onstream later on this year, a.k.a. lowering some growth expectations for Europe? And that's it for me.

That's it? Hi, Stephanie. This is Sam. I hope you are well.

Well, stop me if I don't -- if I miss one of those. First, on the repurchases, the activity on January 12 took place in May and June of this year. Going forward, as we explained in the call, we will continue to look at those opportunities.

It will be based on our view of where the bonds are trading, what our liquidity position is, and ultimately whether we think it is an economically favorable use of our cash. I don't want to provide any specific guidance at this point as to what bonds will be targeted.

Okay, great.

Okay? On the -- let us come back, so we're just going to make sure we're looking at the right footnote on your question about intercompany funding. The guidance that was provided at the beginning of the year on securitization -- I think it was between GBP0.3 billion to GBP0.7 billion. That had only envisioned a single transaction; and we had established a range at the beginning of the year to give us flexibility in going to market with that transaction. That transaction ended up being completed at GBP0.4 billion. So now that guidance has been changed just to the fixed number.

Then on the unsecured debt side, it is a little bit lower. I think part of that is a function of we have narrowed the guidance as we have moved on to the first half of the year. It is partly a reduced funding requirement; and then we are also mindful of what market conditions look like.

Right now our liquidity position gives us the opportunity to be opportunistic in our issuance, so we don't anticipate needing to go back to the markets unless the conditions look right for us. Okay. Now, on --

You had another question, Stephanie, about the net obligations to parent?

(multiple speakers) The GBP74 million due to parent.

It's the --

It is broken down in note 8, interim accounts. But it is mainly related to deposits from Ford Credit International; and they relate to the guarantees that we are providing Ford for their investment in Romania.

Okay.

We provide the bank guarantee; Ford provides us with their collateral deposits against that guarantee. That increased in the period.

But it also relates to just the normal calendarization of intercompany accounts payable between ourselves and Ford.

It is provided in some detail on note 8 to the accounts, Stephanie.

Okay, perfect. Thank you very much.

(Operator Instructions) Mr. Ryan, we have no further questions at this time.

Great. Thanks, Crystal. Ladies and gentlemen, that concludes today's call. Thank you for joining us.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect and have a great day.