September 10, 2003 Presentation to ICC 0 Competitive Trends in the Wire and Cable Industry by Gordon Thursfield Nexans North America
September 10, 2003 Presentation to ICC 0
Competitive Trends
in the
Wire and Cable Industry
by
Gordon Thursfield
Nexans North America
September 10, 2003 Presentation to ICC 1
Agenda
l Technological Developments
l Industry Rationalization
l Economic Environment
l The Future
September 10, 2003 Presentation to ICC 2
Example: Energy networks
Electricalpowerplant
Submarine energy cables
Equipment & special cables
LV insulated overhead
cablesMV/LV
HV/MVUnderground
MV Cables
LV underground cables
OverheadHV cables
OPGW
ADSS
OverheadHV cables
Underground HV Cables
Laying vessel
Underground MV Cables
Overhead HV cables
September 10, 2003 Presentation to ICC 3
Example: Telecom networks
ROW* Rivers and waterways
Interconnect hardware
Metropolitan cables
Long haul cables
Cellular antennas and systems
Submarinenetworks ROW* Gas linesFresh water
ROW* Power lines OPGW/ADSS cables
Long haul cables
Local area networks:
cabling solutions
and component
s
Fiber in the loop
ROW* Highways
ROW* Railways Underground and aerial cables
ROW*: Right of ways
September 10, 2003 Presentation to ICC 4
Example: a car
Special cablesfor heated seats,windows,…
Special cablesfor ABS systems
POF cablesfor multimediaapplications
Winding wiresfor small motors Precision cables
for sensors used forairbags, brake pads,…
Winding wires forelectronic coils used inmany instruments such asdials for speed and fuel
Coaxial cables forcommunication & navigationsystems Magnebond wires used in
various motor components
Automotive harnessesthat link information andPower supply systems
September 10, 2003 Presentation to ICC 5
Example: Smart Buildings
Copper & Fiber LAN
Multimedia
IndustrialLAN
Elevatorcables
High Voltage cables for
power distribution
Ballasts for lamps
Low Voltage Wires for HVAC
AV surveillance cables Cables for
Fire security MVcabinet Rubber
cablesProcesscontrol
MV power cables
Alarm wires for burglar alarm
Heatingcables
September 10, 2003 Presentation to ICC 6
Example: shipbuilding
Optical Fiberto connect antennas todistribution networks
High and Low Voltage energy cables for propulsion and power distribution
Thin-wall LV cables to provide energy to equipment, conveniences, cabins,…
Coaxial cables & Cat7 solutions for entertainment and internet services
Instrumentation & Control cables to carry technical information
Winding wires for motors, generators, compressors,…
Telephone cables
LV energycables for lighting
Hybrid energy & data cables forsurveillance cameras and informationtransmission
Maritime LAN cablesfor telecommunicationand passenger videoservice and entertainment
Sensor measurement and fieldbuscables for hydraulic systems, motors and rudder control
September 10, 2003 Presentation to ICC 7
Wire and Cable IndustryTechnological Developments
Power Cables - Medium Voltage
Paper Lead
Thermoplastic High Molecular Weight Polyethylene
Crosslinked Polyethylene (XLPE)/Ethylene Propylene Rubber (EPR)
High Performance Crosslinked Polyethylenev Tree Retardant Compoundsv High Performance Shieldsv Water Blocked Cablesv High Performance Jacketing Materials
w Cable life well in excess of 40 years even in arduous conditions.w Paper insulated cables totally out of the picture.
The industry is now totally comfortable with MV TRXLPE/EPR cables in almost all environments.
September 10, 2003 Presentation to ICC 8
Wire and Cable IndustryTechnological Developments
Power Cables - High Voltage
Oil Filled/Oil Impregnated Cables
Crosslinked Polyethylene(EPR to 230 kV)
Super Conductors
l Crosslinked polyethylene now the standard for almost all voltages and particularly >230 kV.
l Crosslinked XLPE performs well even at extra high voltage.E.g. several 500 kV installations performing well.
l Super conductors could be the norm for inner-city installations 10 years from now.
September 10, 2003 Presentation to ICC 9
Wire and Cable IndustryTechnological Developments
Industrial Application Cables
Trends include:l Fire Retardantl Low Smoke Zero Halogenl Crosslinked Jackets - Water Curable Compoundsl High Flexibility Cablesl Umbilical Cables for Off-Shore Installationsl Ultra High Temperature Resistant
Technology has advanced to the extent that cables can be designed to perform in almost any environment.
September 10, 2003 Presentation to ICC 10
Wire and Cable IndustryTechnological Developments
Telecommunications and Data
l In a little over 10 years, fiber optic cables have become a commodity - contributing to massive reliance on industry and society on high performance communications on a world wide scale.
l Also high performance data cables have emerged to satisfy needs for high speed and universal internet access.
September 10, 2003 Presentation to ICC 11
Wire and Cable IndustryIndustry Rationalization
Profitability of Industry
Despite massive technological advancements this is not a profitable industry.
l Margins are very thin.l Costs of maintaining a presence in industry while continually advancing
technology are high.l The market does not reward excellence.
As a result -l Significant rationalization - but still no where near enough.l A number of high profile bankruptcies.l Difficult to continue to attract talent to facilitate continued advancement.
September 10, 2003 Presentation to ICC 12
Wire and Cable IndustryEconomic Environment
The World Picture
Commodity application cables have migrated to low cost countries (primarily ASIA).
e.g. CordsCord SetsMagnet WireLighting CablesAutomobile Harness WiringLow Category Data CablesHook-Up Wires
and others could follow:e.g. Overhead Transmission
Building WiresElectronic Application Cables
The North American manufacturing base for wire and cable will continue to shrink!
September 10, 2003 Presentation to ICC 13
Wire and Cable IndustryEconomic Environment
The European Picture
l Many “famous” companies have disappeared and/or been absorbed through rationalization and closures.
l Creation of the single European market has eliminated “country specialists and leaders.”
l Market rationalized to 3 major players in Europe -u Nexansu Pirelliu Drakaand a few product specialists focussing on specific market niches.
l The North American, and indeed, the World market could follow.
September 10, 2003 Presentation to ICC 14
Sales 2001 (by geography)
Sumitomo
Nexans
Pirelli C&S
Corning OF & Cable
Draka
Superior Telecom
General Cable
Avaya C.S.
Belden
CDT
Europe North America Rest of World
September 10, 2003 Presentation to ICC 15
Leading cablemakers have faceddeclining markets over the last two years
Sales Evolution (Leading Publicly Quoted Companies $M)
518 813
1 113
1 454
3 460
4 302
A B
1 499
D
1 512
C E F G H
200020012002
2000/2002 -10 % -25 % -26 % -17 % -18 % +13 % -28 % -39 %
Average sales decline(2000-2002)
-18 %
Company
September 10, 2003 Presentation to ICC 16
Over this period, OP has gone downby 76 % on average
Operating Profit ($M)
70
23393939
5256
-26
-30
20
70
120
170
220
270
F A E C G D H B
200020012002
2000-2002OP: -900 M (-5pp)
OP 2002 6.0 % 1.3 % 3.5 % 2.6 % 4.8 % 2.6 % 4.5 % -0.8 %
Company
September 10, 2003 Presentation to ICC 17
About 80% of the OP declineis related to the “Telecom crisis”
OP Telecom ($M)
23
4
-14
-35
2939
-81
-100
-50
0
50
100
150
G C H E D A B
200020012002
9 → 5 % 14 6 % 13 5 % 9 1 % 15 -5 % 5 -6 % 11 -18 %-28 % -38 % -39 % -31 % -50 % -34 % -67 %
2000-2002
OP margin:Sales:
→ → → → → →
2000/2002
Company
Telecom contributes $700M to the profit decline.
September 10, 2003 Presentation to ICC 18
OP from “non-Telecom businesses” has become vital to many cablemakers
"Non Telecom" OP ($M)
83
68 70
5548
33
0
20
40
60
80
100
120
140
A D F B E C
200020012002
OP margin2002
2.6 % 5.5 % 6.0 % 1.8 % 4.7 % 3.3 %
September 10, 2003 Presentation to ICC 19
In summary
l The environment has changed dramatically over the past two years - Most players have been injured and a few are barely alive
l All have been actively restructuring their operations to cope with current market conditions:u Significant headcount reductions at all major players.u Industrial rationalization with elimination of excess capacity and reduction of floor spaceu Reduction of SG&A in line with sales decline
l Looking forward, there is not any sign of a market recovery yet and the cable business is more challenging than ever:u Cost/price competitiveness will remain key to achieve decent marginsu Fight among large and small players to secure/gain market share is likely to intensify
l Impact of Asian, East European, South American competition will also intensify.
September 10, 2003 Presentation to ICC 20
Demand for Electrical Equipment Products hasDeclined 25% in the Last 5 Years
2200
2400
2600
2800
3000
3200
3400
1998 1999 2000 2001 2002 2003
(Millions of 1996 Dollars, SAAR)
Source NEMA - July 2003
September 10, 2003 Presentation to ICC 21
Employment in our Industry has Declined 30%in the Same Period
160
170
180
190
200
210
220
230
1998 1999 2000 2001 2002 2003
(Number of Employees, in Thousands)
Source NEMA - July 2003
September 10, 2003 Presentation to ICC 22
80
90
100
110
120
130
140
150
160
170
1998 1999 2000 2001 2002 2003
(Seasonally adjusted index, average quarter 1987=100)
Decline in US Demand for Wire and Cableis Even Greater
Source NEMA - July 2003
September 10, 2003 Presentation to ICC 23
Wire and Cable IndustryThe Future
Future Challenges
l North America is an increasingly expensive manufacturing base.u High Labour and Benefit Costs.u Environmental, health and safety, taxation and other costs much higher than
in developing countries.
Employment in US manufacturing has declined 20% since 2000.
l To succeed, North American manufacturers must continue to differentiate themselves.
u Cannot compete on manufacturing cost alone on commodity items.u Must compete on service, quality and technical leadership and higher value
added products.u Must continue to develop system solutions to create value-added to the
customer.
September 10, 2003 Presentation to ICC 24
Wire and Cable IndustryThe Future
Future Challenges
l Perhaps the biggest challenge of all is to advance cable and cable system design to facilitate high levels of manufacturing efficiency.
l The potential for significant infrastructure investment in the North American power grid, presents a real challenge for our wire and cable engineers.
u Propose System Solutionsu Propose Latest Technologiesu Propose Underground Solutions Wherever and Whenever Possible.
Pro-active leadership from the wire and cable industry on this issue could improve the viability of our industry during the next decade.