Wabco Holdings Inc. has a market cap of $3.83 billion; its shares were traded at around $61.93 with a P/E ratio of 12.2 and P/S ratio of 1.4.
Highlight of Business Operations:We sell our products primarily to four groups of customers around the world: truck and bus (OEMs), trailer (OEMs), commercial vehicle aftermarket distributors for replacement parts and services, and major car manufacturers. Our largest customer is Daimler, which accounted for approximately 12% and 13% of our sales in 2011 and 2010, respectively. Volvo accounted for 11% and 10% of our sales in 2011 and 2010, respectively. Other key customers include Ashok Leyland, BMW, China National Heavy Truck Corporation (CNHTC), Cummins, Fiat (Iveco), Hino, Hyundai, Krone, MAN Nutzfahrzeuge AG (MAN), Meritor, Meritor WABCO (a joint venture), Paccar (DAF Trucks N.V. (DAF), Kenworth, Leyland and Peterbilt), First Automobile Works, Otto Sauer Achsenfabrik (SAF), Scania, Schmitz Cargobull AG, TATA Motors and ZF Friedrichshafen AG (ZF). For the fiscal years ended December 31, 2011 and 2010, our top 10 customers accounted for approximately 52% and 51% of our sales, respectively.
Gross profit increased by $192.9 million ($158.2 million excluding foreign currency translation effects). Volume and mix contributed $99.8 million of the increase while our continued focus on materials and conversion productivity as well as the benefits realized from overhead absorption generated $104.3 million in improvements. The achievement of these levels of improvement include 5.9% savings on our conversion costs, a record amount, and 5.3% of materials savings before the cost of raw material inflation, which had a negative impact of 2.0% compared to last year. Partially offsetting these improvements were sales price declines that had a negative impact of $26.6 million, or 1.0% of sales. Labor and other cost escalations, net of changes in streamlining expenses, were higher by approximately $12.0 million. Foreign currency transactional impacts negatively affected gross profit in the amount of $7.3 million.
Our sales for 2010 were $2.2 billion, an increase of 45.9% (47.3% excluding foreign currency translation effects and 43.6% excluding the acquisition of WABCO India which the Company began consolidating in June of 2009) from $1.5 billion in 2009. The increase was attributable to the higher levels of commercial vehicle production that was evident in all markets across the world, expansion of our aftermarket business, as well as increased WABCO content per vehicle. Total sales in Europe, our largest market, increased approximately 35.9% (40.5% excluding foreign currency translation effects) for the full year 2010. Total sales increased 39.0% in North America. Total sales in Asia increased 80.5% (74.5% excluding foreign currency translation effects). The sales growth in Asia included an increase in total sales in China of 69.1% (67.4% excluding foreign currency translation effects), which continued to benefit from higher production levels in addition to increased content per vehicle. Total sales in South America increased 73.0% (56.1% excluding foreign currency translation effects), which benefited from increased production of T&B and growing content per vehicle. Based on our analysis, WABCO's sales growth for 2010 has outperformed the market growth in each region. The global aftermarket sales increase, included in the geographic numbers provided above, was 21.2% (22.3% excluding foreign currency translation effects). The sales for 2010 were at a record level for the aftermarket business, which has benefited from higher fleet utilization rates compared to 2009 and from the continued execution of our aftermarket growth strategies initiated several years ago.
Gross profit increased by $287.3 million ($298.9 million excluding foreign currency translation effects). The main drivers of the increase in gross profit were volume and mix, materials and conversion productivity, and overhead absorption. Volume and mix contributed $142.2 million of the increase while our continued focus on materials and conversion productivity, as well as the benefits realized from overhead absorption generated $136.9 million in improvements. The achievement of this level of improvement was driven by our ability to maintain strict control over indirect costs and was accomplished in an environment where commodity inflation increased our materials cost by approximately 1.7% compared to last year. We generated $15.0 million in margin improvements by benefiting from the exchange rate advantages of our global manufacturing footprint. Also, included in gross profit was approximately $1.6 million of higher foreign currency transactional gains primarily related to the remeasurement of foreign currency monetary assets and liabilities on our balance sheet. Lower streamlining expenses increased gross profit by $36.5 million. Partially offsetting these improvements were sales price declines that had a negative impact of $29.8 million, or 1.3% of sales, and labor and other cost escalations of approximately $3.5 million.
Other financing receivables include sales to reputable State Owned and Public Enterprises in China that are settled through notes receivable which are registered and endorsed to the Company. These notes receivable are fully secured and generally have contractual maturities of six months or less. These guaranteed notes are available to be discounted with banking institutions in China or transferred to suppliers to settle liabilities. The total amount of notes receivable discounted or transferred for the years ended December 31, 2011 and 2010 were $62.8 million and $85.3 million, respectively, resulting in expenses of $0.6 million and $0.9 million for the years ended December 31, 2011 and 2010, respectively, which are included in “Other non-operating expense, net.” The carrying amounts of these guaranteed notes receivable are $40.0 million and $22.4 million as of December 31, 2011 and December 31, 2010, respectively, and are included in “other current assets” on the consolidated balance sheets. The Company monitors the credit quality of these notes through historical losses and current economic conditions with Chinese banks. As these receivables are guaranteed by banks and the Company has not experienced any historical losses nor is the Company expecting future credit losses, we have not established a loss provision against these receivables as of December 31, 2011 or December 31, 2010.
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