WEBVTT 1 00:00:07.465 --> 00:00:11.215 Hello and welcome to this educational film, which is going 2 00:00:11.215 --> 00:00:13.935 to deal with one figure and two companies. 3 00:00:14.195 --> 00:00:17.095 The figure is $5 billion plus 4 00:00:17.915 --> 00:00:21.575 and the two companies are BY, D and cattle. 5 00:00:23.045 --> 00:00:25.695 What do these two companies have in common? 6 00:00:25.805 --> 00:00:27.535 They are first born in China. 7 00:00:27.845 --> 00:00:29.895 They are mainly operating in China. 8 00:00:30.245 --> 00:00:32.975 They are 100% Chinese corporations. 9 00:00:33.485 --> 00:00:35.415 They both operate in the same industry, 10 00:00:35.415 --> 00:00:37.055 which is the automotive industry. 11 00:00:37.975 --> 00:00:40.655 BYD is about batteries and cars. 12 00:00:41.195 --> 00:00:45.375 Cattle is about batteries and maybe tomorrow cars as well. 13 00:00:46.165 --> 00:00:48.415 It's about the electrical vehicle. 14 00:00:48.645 --> 00:00:50.175 Nothing to do with the terminal. 15 00:00:50.495 --> 00:00:52.975 NGM, it's about the EV 16 00:00:53.195 --> 00:00:55.495 and these two companies are quite recent. 17 00:00:56.245 --> 00:01:00.535 They were not created decades ago, quite recently 18 00:01:00.715 --> 00:01:05.215 and extremely successful in terms of growth in the revenues 19 00:01:05.475 --> 00:01:09.415 and in terms of value creation as well for the investors. 20 00:01:10.355 --> 00:01:13.135 If we look at the evolution of the revenues generated 21 00:01:13.235 --> 00:01:14.855 by respectively, BYD 22 00:01:15.095 --> 00:01:18.615 and cattle, we observed that it was slow moving up 23 00:01:18.615 --> 00:01:22.215 to a few years ago and it started skyrocketing. 24 00:01:22.215 --> 00:01:25.895 If you look at the current BYD revenues 25 00:01:26.075 --> 00:01:29.695 2024, it's more than $100 billion, 26 00:01:30.155 --> 00:01:31.895 so it's not a startup anymore. 27 00:01:32.205 --> 00:01:35.615 It's a very big company which is fast growing. 28 00:01:35.885 --> 00:01:39.495 What about cattle? Cattle is about half the size of BYD. 29 00:01:40.115 --> 00:01:42.455 It started getting up recently. 30 00:01:42.875 --> 00:01:44.215 It was dramatic growth 31 00:01:44.995 --> 00:01:48.615 and if you look at 24, there's a kind of stabilization, 32 00:01:49.275 --> 00:01:51.895 but we are going to discover the potential for growth 33 00:01:52.715 --> 00:01:55.375 for BYD and certainly for cattle. 34 00:01:56.395 --> 00:01:59.175 Now what about value creation? What about the stock price? 35 00:01:59.665 --> 00:02:02.735 These companies were recently for cattle 36 00:02:02.915 --> 00:02:07.255 and a bit far ago for BYD listed on the sheen 37 00:02:07.435 --> 00:02:09.695 and now on the Hong Kong stock exchange. 38 00:02:10.315 --> 00:02:13.375 And if you look at the original stock price, it was not 39 00:02:13.445 --> 00:02:17.335 that brilliant except that from 2019 40 00:02:17.475 --> 00:02:21.775 to 2021, the stock price mul multiplied by five 41 00:02:22.475 --> 00:02:24.975 in two years, which is an outstanding performance. 42 00:02:24.975 --> 00:02:28.695 Now there seems to be a kind of plateauing this last year, 43 00:02:28.755 --> 00:02:30.855 but the question is how does it compare 44 00:02:30.925 --> 00:02:33.015 with the Hong Kong stock exchange? 45 00:02:33.635 --> 00:02:36.135 And that's a very interesting observation. 46 00:02:36.725 --> 00:02:39.535 When the stock price was flat for these two companies, 47 00:02:39.535 --> 00:02:44.215 it was quite flat for the Hong index and then it went up 48 00:02:44.325 --> 00:02:47.615 because of these companies, not because of the market. 49 00:02:48.315 --> 00:02:51.735 And if you look at the last year, the Hoang index was down 50 00:02:52.715 --> 00:02:55.455 and both companies show some resilience, 51 00:02:56.195 --> 00:03:00.165 so cattle is down not as much as the hang saying 52 00:03:00.585 --> 00:03:04.205 and BYD is down not as much as cattle. 53 00:03:04.505 --> 00:03:06.085 So you understand that there is kind 54 00:03:06.085 --> 00:03:08.125 of resilience in the value creation 55 00:03:08.275 --> 00:03:11.325 because of the prospects investors have in mind about 56 00:03:11.325 --> 00:03:12.405 these two companies. 57 00:03:13.305 --> 00:03:17.885 Now let's move to BYD first. You know, build your dream. 58 00:03:17.885 --> 00:03:19.965 Build your dream is not the name of the company. 59 00:03:19.995 --> 00:03:22.405 It's a kind of motto for marketing reasons. 60 00:03:23.025 --> 00:03:26.925 The name of the company initially is Yadi Electronics. 61 00:03:27.075 --> 00:03:30.725 They added a B and it became B Yadis. 62 00:03:30.725 --> 00:03:34.005 This is the name the company was created in 1995 63 00:03:34.265 --> 00:03:35.725 by one Trunk fu. 64 00:03:36.505 --> 00:03:39.645 At the very beginning it was about rechargeable batteries 65 00:03:39.825 --> 00:03:42.005 and predominantly for mobile phones. 66 00:03:42.785 --> 00:03:43.845 In 2012, 67 00:03:44.105 --> 00:03:48.445 the company has more than a 50% market share in a mobile 68 00:03:48.955 --> 00:03:51.045 battery rechargeable battery. 69 00:03:51.545 --> 00:03:56.405 The company went public in 2002 and a few weeks 70 00:03:56.495 --> 00:03:58.765 after the IPO, the company announced 71 00:03:58.765 --> 00:04:00.605 that they were getting into the car business 72 00:04:01.115 --> 00:04:05.125 with the acquisition of Han Wan automobile. 73 00:04:05.885 --> 00:04:09.365 Interestingly, this acquisition was not even mentioned 74 00:04:09.365 --> 00:04:12.685 as a prospect in the IPO prospectus 75 00:04:12.685 --> 00:04:16.085 and the investors were a little bit emotion by the fact 76 00:04:16.085 --> 00:04:17.525 that the information was missing. 77 00:04:17.915 --> 00:04:19.005 Okay, that's another story. 78 00:04:19.225 --> 00:04:21.965 Now the company starts in the electrical vehicle 79 00:04:22.745 --> 00:04:25.325 and start with a plugging hybrid vehicle. 80 00:04:25.545 --> 00:04:29.645 It is 2008, 2009 electric vehicle 81 00:04:30.385 --> 00:04:33.005 and now they are an extremely strong 82 00:04:33.005 --> 00:04:34.205 player in this business. 83 00:04:35.115 --> 00:04:39.885 Just for the fund. In 2008, Berkshire Hadaway Warren Buffet 84 00:04:40.815 --> 00:04:44.245 takes about 10% of BYD 85 00:04:44.385 --> 00:04:47.125 for eight Hong Kong dollars per share. 86 00:04:47.715 --> 00:04:52.605 It's a cash out of $230 million, so it's quite significant, 87 00:04:53.305 --> 00:04:57.165 but if you look at the stock price in 2025 today, 88 00:04:57.305 --> 00:05:01.165 the price is $382.50. 89 00:05:01.625 --> 00:05:04.885 The day I am recording this film, you understand 90 00:05:04.885 --> 00:05:06.765 that the initial investment made 91 00:05:06.765 --> 00:05:09.805 by Berkshire Hadaway was multiplied by 48 92 00:05:10.545 --> 00:05:14.885 and today the value of this investment is $11 billion. 93 00:05:14.995 --> 00:05:17.685 This is not bad if you compare the initial investment 94 00:05:17.745 --> 00:05:19.365 of 230 million. 95 00:05:20.425 --> 00:05:23.445 Warren Buffet always said, it's not my credit, 96 00:05:23.555 --> 00:05:26.085 it's the credit of my partner Charlie Munger. 97 00:05:26.225 --> 00:05:28.845 He had the idea congratulations 98 00:05:28.945 --> 00:05:30.205 and that's a great investment. 99 00:05:30.545 --> 00:05:32.485 Now, initially they had 10%. 100 00:05:32.495 --> 00:05:35.165 Today they have a little bit less than 5% 101 00:05:35.435 --> 00:05:39.125 because it's a bit easier in terms of publication 102 00:05:39.345 --> 00:05:42.525 and reporting as far as the value of the asset is concerned. 103 00:05:42.715 --> 00:05:46.045 Initially B widely was in a battery business. 104 00:05:46.315 --> 00:05:48.445 They progressively move to the car business 105 00:05:48.505 --> 00:05:52.165 and today the automotive business is producing 80% 106 00:05:52.225 --> 00:05:53.685 of their revenue, so it's quite 107 00:05:54.045 --> 00:05:55.405 dominant, no doubt about that. 108 00:05:55.705 --> 00:05:58.485 The revenue is generated by the company in 2024. 109 00:05:58.885 --> 00:06:01.285 I said a bit more than $100 billion, 110 00:06:01.515 --> 00:06:04.005 exactly $107 billion. 111 00:06:04.545 --> 00:06:08.965 In the meantime, same year Tesla announced 98 billion. 112 00:06:09.345 --> 00:06:11.085 Now BYD is billions 113 00:06:11.085 --> 00:06:15.725 and Tesla, more vehicles 4.3 million, 114 00:06:16.305 --> 00:06:17.805 but it combines hybrid 115 00:06:18.545 --> 00:06:22.325 and ev, it's about 32% market share in China, 116 00:06:22.545 --> 00:06:26.005 so it's the biggest EV company in China, 117 00:06:26.665 --> 00:06:30.125 and electric vehicles represent a bit more than 50% 118 00:06:30.125 --> 00:06:32.765 of the total vehicles which are sold in China. 119 00:06:33.545 --> 00:06:36.085 How does it compare with Tesla in terms of number 120 00:06:36.085 --> 00:06:40.005 of vehicles, no hybrid of any kind of Tesla, just EV 121 00:06:40.625 --> 00:06:44.645 1.8 million, which is much less than 4.3 million. 122 00:06:45.115 --> 00:06:46.765 They are not sold on the same price. 123 00:06:47.145 --> 00:06:50.845 Now in terms of volume B widely looks much bigger than Tesla 124 00:06:51.585 --> 00:06:54.965 in terms of market capitalization, it's a different story 125 00:06:55.785 --> 00:06:59.405 The day I'm recording this film, the stock market value, 126 00:06:59.425 --> 00:07:03.765 the market capitalization of BYD is $150 billion, 127 00:07:04.175 --> 00:07:05.485 which is not negligible, 128 00:07:05.825 --> 00:07:09.565 but Tesla is $850 billion. 129 00:07:10.665 --> 00:07:13.645 The founder of the company was Mr. Wong Chan Fu. 130 00:07:14.385 --> 00:07:18.965 His wealth is estimated by Forbes $28 billion. 131 00:07:19.595 --> 00:07:21.125 This is a commercial success 132 00:07:21.145 --> 00:07:23.605 but it is also a personal success as far as 133 00:07:24.165 --> 00:07:25.245 personal wealth is concerned. 134 00:07:25.385 --> 00:07:26.485 Now let's move to cattle. 135 00:07:27.185 --> 00:07:31.725 Cattle means contemporary and Parex X technology limited. 136 00:07:32.145 --> 00:07:35.165 At the very beginning it was just named Amper X technology 137 00:07:35.825 --> 00:07:40.605 and it was in the electronic competence acquired by TDK, 138 00:07:41.265 --> 00:07:43.485 the Japanese company in this kind of industry 139 00:07:43.485 --> 00:07:46.165 with energy mobile IOT and so 140 00:07:46.165 --> 00:07:49.205 and so first, the part of the business which is devoted 141 00:07:49.205 --> 00:07:53.805 to the electric vehicle is spun off in 2011 from TDK. 142 00:07:54.785 --> 00:07:58.125 Now the company immediately signed a corporation agreement 143 00:07:58.305 --> 00:08:01.325 in 2012 with the joint venture 144 00:08:01.465 --> 00:08:04.165 of BMW is brilliance in China. 145 00:08:04.625 --> 00:08:08.125 Now BMW is dominant in the joint venture 146 00:08:08.745 --> 00:08:11.685 and it's a very important starting point in terms 147 00:08:11.705 --> 00:08:15.005 of agreement with large car manufacturers. 148 00:08:15.705 --> 00:08:17.685 Now the company is extremely successful 149 00:08:18.265 --> 00:08:22.205 in 2016 there are number three behind PANACEK 150 00:08:22.465 --> 00:08:26.485 and BYD in terms of batteries for electric vehicles. 151 00:08:26.875 --> 00:08:29.525 This is 20 16 20 17. 152 00:08:29.595 --> 00:08:31.885 They moved from number three to number one 153 00:08:32.025 --> 00:08:34.845 and they are still number one by far. 154 00:08:35.225 --> 00:08:37.285 If you look at the statistics which are produced 155 00:08:37.385 --> 00:08:40.485 by a research center based in Korea cattle 156 00:08:40.865 --> 00:08:44.405 for the period January to December, 2024, 157 00:08:44.875 --> 00:08:48.445 it's 38% worldwide market share for 158 00:08:49.065 --> 00:08:53.485 EV batteries number two, but quite far now is BYD. 159 00:08:53.555 --> 00:08:56.245 Then you have a few players and so on so forth. 160 00:08:56.545 --> 00:08:59.925 One is a bit more than 10%, the rest is 4% or less. 161 00:09:00.425 --> 00:09:02.565 So you understand that the company's corporately 162 00:09:03.045 --> 00:09:04.285 dominant worldwide. 163 00:09:04.765 --> 00:09:06.885 BYD was listed in 2002. 164 00:09:06.985 --> 00:09:11.005 Cattle was listed more recently in 2018 165 00:09:12.045 --> 00:09:14.725 IPO just on the Xang Z stock market. 166 00:09:14.865 --> 00:09:16.405 So it's about a shares 167 00:09:16.785 --> 00:09:19.765 and ahas are reserves to investors 168 00:09:20.315 --> 00:09:24.925 operating in mainland China, which is quite interesting, 169 00:09:25.225 --> 00:09:26.965 but you are not open to the world 170 00:09:27.025 --> 00:09:29.325 and this is why the day you need money you need 171 00:09:29.325 --> 00:09:32.565 to probably broaden a little bit to scope in terms of 172 00:09:33.545 --> 00:09:37.725 internationalization of the investors funds raised at 173 00:09:37.725 --> 00:09:42.605 that time 760 million US dollars for a valuation 174 00:09:42.865 --> 00:09:44.205 of 11 billion. 175 00:09:45.025 --> 00:09:48.045 To date, it's a little bit more 2018 176 00:09:49.195 --> 00:09:53.925 factory in Germany for BNW announcement of a cooperation 177 00:09:53.925 --> 00:09:57.485 with Ford Electric vehicles Mustang 178 00:09:58.045 --> 00:10:01.205 Electric F 150 electric 179 00:10:01.385 --> 00:10:04.845 and also a plant which is going to be built in Michigan, 180 00:10:05.795 --> 00:10:08.565 same year announcement of a plant in Europe, 181 00:10:08.795 --> 00:10:12.885 central Europe in Hungary in 2023. 182 00:10:13.185 --> 00:10:15.685 The company is number eight in terms 183 00:10:15.705 --> 00:10:17.965 of patents produced in the world. 184 00:10:18.505 --> 00:10:22.565 So the company is very much invested in innovation research 185 00:10:22.565 --> 00:10:25.485 and the abundance is protecting its intellectual 186 00:10:25.485 --> 00:10:26.885 properties throughout the world. 187 00:10:27.665 --> 00:10:30.245 2024 a year ago agreement 188 00:10:30.395 --> 00:10:33.125 with stellantis, you remember that St. 189 00:10:33.355 --> 00:10:35.925 STIs is PSA plus Chrysler 190 00:10:36.665 --> 00:10:40.085 and they are going to create a joint venture 50 50, 191 00:10:40.555 --> 00:10:43.725 another factory now in Spain, which is going 192 00:10:43.725 --> 00:10:46.725 to cost a little bit more than 4 billion euros. 193 00:10:47.505 --> 00:10:50.365 If you pile up all the investments which were announced 194 00:10:50.385 --> 00:10:54.205 by the company, it's about 14 billion US dollars. 195 00:10:54.795 --> 00:10:56.405 It's quite a large amount of money 196 00:10:56.625 --> 00:10:58.045 and you need some financing. 197 00:10:58.435 --> 00:11:00.765 This will be addressed a little bit later. 198 00:11:00.955 --> 00:11:04.485 What is the valuation today roughly is the same as B, 199 00:11:04.665 --> 00:11:07.845 widely $150 billion. 200 00:11:08.585 --> 00:11:10.405 The founder of the company, Mr. 201 00:11:10.705 --> 00:11:13.965 Jan Hun, has an equity stake in the company 202 00:11:14.185 --> 00:11:17.085 and Forbes evaluates his own wealth at the level 203 00:11:17.105 --> 00:11:18.765 of $36 billion. 204 00:11:19.135 --> 00:11:21.725 Again, it's a fantastic commercial success 205 00:11:22.025 --> 00:11:23.605 and it's not bad for the founder. 206 00:11:23.985 --> 00:11:25.285 Now, very recently, 207 00:11:25.645 --> 00:11:29.645 a few weeks ago there was an announcement which was made 208 00:11:29.645 --> 00:11:32.165 between Baidu and cattle. 209 00:11:32.715 --> 00:11:35.325 They announced that they were going to start producing, 210 00:11:35.855 --> 00:11:39.845 developing and producing autonomous driving systems. 211 00:11:40.825 --> 00:11:45.485 Now if you produce the a DS, if you produce the battery, 212 00:11:45.985 --> 00:11:49.965 the next step is obviously the vehicle, the car itself, 213 00:11:50.905 --> 00:11:53.325 and then what's going to be very interesting is 214 00:11:53.325 --> 00:11:56.165 that be widely moved from the battery to the car 215 00:11:56.785 --> 00:11:58.965 and probably cattle is going to do the same, 216 00:11:59.625 --> 00:12:02.565 but the day you have 38% of worldwide market share, 217 00:12:02.565 --> 00:12:05.685 you are an extremely strong situation in order 218 00:12:05.745 --> 00:12:09.125 to become dominant in this kind industry, which in China 219 00:12:09.785 --> 00:12:12.485 is extremely competitive industry. 220 00:12:12.785 --> 00:12:14.245 Now that was about this story. 221 00:12:14.255 --> 00:12:16.005 Let's have a look at the financial metrics. 222 00:12:16.435 --> 00:12:19.005 Financial metrics which return capital employed 223 00:12:19.805 --> 00:12:22.245 economic indicator, which tells you the performance 224 00:12:22.245 --> 00:12:23.685 of your business operations. 225 00:12:24.005 --> 00:12:26.405 A strong element in the financial performance 226 00:12:26.405 --> 00:12:27.725 calculation of the company. 227 00:12:28.265 --> 00:12:29.285 You remember that you 228 00:12:29.505 --> 00:12:33.005 for mulla rose return capital is return on sales, 229 00:12:33.005 --> 00:12:35.845 commercial profitability times assets, turnover, 230 00:12:36.305 --> 00:12:37.405 assets, productivity. 231 00:12:38.355 --> 00:12:41.485 What is interesting if you look at BYD is 232 00:12:41.485 --> 00:12:45.245 that the return capital today is significantly more than 233 00:12:45.245 --> 00:12:48.845 yesterday, but it is only 15%. 234 00:12:49.195 --> 00:12:50.485 What drove the evolution 235 00:12:50.485 --> 00:12:54.125 of the return capital employed in the last years is not 236 00:12:54.125 --> 00:12:56.605 that much evolution of the commercial profitability, 237 00:12:57.255 --> 00:12:59.845 which is quite low, four 5%. 238 00:13:00.585 --> 00:13:02.805 Now what drove the rose up is the evolution 239 00:13:02.805 --> 00:13:06.885 of the assets turnover, which went up dramatically 240 00:13:06.885 --> 00:13:08.245 during the last years. 241 00:13:09.225 --> 00:13:12.605 If you look at the same graph for capital, you understand 242 00:13:12.605 --> 00:13:17.405 that the return capital employed is also kind of 15% 243 00:13:18.145 --> 00:13:20.485 return on sales, not outstanding, 244 00:13:21.445 --> 00:13:23.405 a little bit growing throughout the years, 245 00:13:23.465 --> 00:13:27.845 but not dramatic economies of scale generated by volumes. 246 00:13:28.275 --> 00:13:31.645 Then the assets turnover is driving the return capital 247 00:13:32.005 --> 00:13:34.605 employee, it's a bit more volatile, of course it's up, 248 00:13:34.665 --> 00:13:38.765 but it's more volatile than BYD for which it's steadily up. 249 00:13:38.945 --> 00:13:41.205 Now if we summarize the construction of the rose, 250 00:13:41.825 --> 00:13:45.765 the return sales is constant for BYD four, five, 251 00:13:46.305 --> 00:13:51.125 all growing slowly for cattle from six to seven to 8%, 252 00:13:51.585 --> 00:13:52.685 but it's not that big. 253 00:13:53.035 --> 00:13:54.525 It's not tremendous p 254 00:13:54.525 --> 00:13:56.845 and l, it is the assets turnover, 255 00:13:56.845 --> 00:13:59.965 which is driving the return capital employed against about 256 00:13:59.965 --> 00:14:04.125 15% for both of them tripling for BY, D 257 00:14:04.125 --> 00:14:08.285 during the last years a bit variable even if it was a little 258 00:14:08.285 --> 00:14:09.845 bit of for cattle. 259 00:14:10.305 --> 00:14:12.005 Now the return on capital employee, 260 00:14:12.065 --> 00:14:16.525 and that's a very important observation, is quite moderate, 261 00:14:17.345 --> 00:14:19.845 so these companies are creating a lot of value. 262 00:14:20.225 --> 00:14:22.885 The stock price is skyrocketing, not the rose, 263 00:14:24.025 --> 00:14:27.245 and if you look at BYD as opposed to cattle, BYD, 264 00:14:27.245 --> 00:14:31.485 again it's 4.5% average times 3.2 265 00:14:31.985 --> 00:14:35.405 for cattle is 7.5% times two. 266 00:14:35.825 --> 00:14:40.525 The by the ends a day you get to 15%, you take the taxes out 267 00:14:40.525 --> 00:14:42.805 of that and you deduct the cost of capital. 268 00:14:43.065 --> 00:14:45.525 The financial performance is not fantastic, 269 00:14:45.945 --> 00:14:48.245 but the market likes these two companies. 270 00:14:48.545 --> 00:14:51.405 If you confront the return capital market to book, 271 00:14:51.405 --> 00:14:53.885 which are Jira speaking, quite correlated 272 00:14:53.985 --> 00:14:57.685 for companies which get to a certain level of maturity, 273 00:14:57.935 --> 00:14:59.245 there is a correlation here. 274 00:14:59.265 --> 00:15:02.005 The correlation is not that obvious. 275 00:15:02.015 --> 00:15:04.485 There is a kind of correlation and momentum, 276 00:15:04.665 --> 00:15:06.605 but what is very interesting if that 277 00:15:06.605 --> 00:15:08.525 for a company like biwa E, 278 00:15:08.905 --> 00:15:11.925 the rose is only 15 per cm 279 00:15:12.105 --> 00:15:14.125 and the market to book is three 280 00:15:14.545 --> 00:15:17.405 or it went up to four and five. 281 00:15:17.775 --> 00:15:22.445 Today it's three, but three is quite a lot when you compare 282 00:15:22.675 --> 00:15:25.285 with the rose, which again should be calculated 283 00:15:25.285 --> 00:15:26.805 after tax minus the wh. 284 00:15:27.385 --> 00:15:29.885 So at the end of the day there is some potential 285 00:15:29.945 --> 00:15:31.125 for growth in the market 286 00:15:31.185 --> 00:15:34.165 to book even though it was declining the last two years. 287 00:15:34.595 --> 00:15:35.885 Same story for cattle. 288 00:15:36.345 --> 00:15:38.045 The correlation is not that obvious 289 00:15:38.075 --> 00:15:40.445 between the return capital and the market to book, 290 00:15:40.445 --> 00:15:41.805 but this company is quite young 291 00:15:42.025 --> 00:15:44.525 and it's not yet quite stabilized. 292 00:15:45.065 --> 00:15:50.005 Not 15% is the rose and the market to book is four. 293 00:15:50.465 --> 00:15:53.725 So you understand that there is some credibility in terms 294 00:15:53.725 --> 00:15:55.485 of value creation as far 295 00:15:55.485 --> 00:15:57.725 as investors' opinions are concerned. 296 00:15:57.875 --> 00:16:00.965 It's interesting to make a benchmark between B, y, D 297 00:16:00.965 --> 00:16:02.485 and cattle as far as credibility 298 00:16:02.505 --> 00:16:04.245 and performance are concerned. 299 00:16:04.895 --> 00:16:08.445 Again, the rose is quite the same for both companies market 300 00:16:08.545 --> 00:16:12.645 to book more than four, four cattle, three, four, BYD. 301 00:16:13.465 --> 00:16:16.605 But what is interesting is to look at the gearing 302 00:16:16.605 --> 00:16:19.285 because when you calculate the work it's weighted average 303 00:16:19.355 --> 00:16:22.485 cost of capillary is the cost of equity and cost of debt. 304 00:16:22.585 --> 00:16:25.125 Pro ratta a respective investment made 305 00:16:25.125 --> 00:16:26.685 by shareholders on one side 306 00:16:26.685 --> 00:16:28.605 and financial operators on the other side. 307 00:16:28.945 --> 00:16:32.445 No financial debt is absolutely marginal, 308 00:16:33.005 --> 00:16:34.965 a little bit positive for BYD, 309 00:16:35.405 --> 00:16:36.965 a little bit negative for cattle. 310 00:16:37.465 --> 00:16:39.885 So the work is in fact the cost of equity. 311 00:16:40.225 --> 00:16:43.725 The cost of equity is a long term government bond rate plus 312 00:16:44.185 --> 00:16:46.885 the market risk premium multiplied by the beta. 313 00:16:47.415 --> 00:16:49.525 These companies are predominantly Chinese 314 00:16:50.105 --> 00:16:51.725 so the government bond rate is the same 315 00:16:51.725 --> 00:16:53.285 and the market risk premium is the same. 316 00:16:53.355 --> 00:16:55.125 What makes a difference is the beta, 317 00:16:55.465 --> 00:16:57.565 and you remember I said 318 00:16:57.565 --> 00:17:00.765 that there was some resilience when the Hong saying went 319 00:17:00.765 --> 00:17:04.605 down, BYD was more resilient than cattle. 320 00:17:05.385 --> 00:17:09.045 The consequences of beta, the beta is 0.64 BY, D 321 00:17:09.185 --> 00:17:10.885 and it is about one for cattle, 322 00:17:11.585 --> 00:17:14.725 but interestingly as the beta is higher for cattle, 323 00:17:15.265 --> 00:17:18.525 the W is higher because the W again is a cost of equity. 324 00:17:19.545 --> 00:17:23.285 Now you understand that it generates the same rose, the wack 325 00:17:23.345 --> 00:17:25.925 of cattle is a little bit higher, which mean 326 00:17:25.925 --> 00:17:29.725 that the economic profit generated by cattle is less 327 00:17:29.745 --> 00:17:32.685 and the economic profit generated by BYD 328 00:17:33.145 --> 00:17:34.885 and the market to book is higher. 329 00:17:35.995 --> 00:17:38.045 What conclusion do you take from that? 330 00:17:38.505 --> 00:17:40.325 You take a very simple conclusion. 331 00:17:40.785 --> 00:17:41.965 If the economic profit 332 00:17:42.105 --> 00:17:45.445 of cattle is less than the economic profit of BYD, 333 00:17:45.445 --> 00:17:47.685 because again it is the same thing, 334 00:17:47.945 --> 00:17:51.165 but as the beta of cattle is greater than the beta of BYD, 335 00:17:51.165 --> 00:17:54.005 the wack of cattle is greater than the wack of BYD. 336 00:17:54.545 --> 00:17:56.165 But if the market to book 337 00:17:56.165 --> 00:17:59.485 of cattle is higher than the market to book for BYD, 338 00:17:59.485 --> 00:18:02.845 it means that the gross prospect are significantly higher 339 00:18:03.185 --> 00:18:06.405 for cattle than BYD, which is quite interesting 340 00:18:06.405 --> 00:18:09.365 because if you look at the recent evolution of sales 341 00:18:10.045 --> 00:18:11.605 B white, it was skyrocketing 342 00:18:11.625 --> 00:18:14.285 and cattle was a little bit plateauing, 343 00:18:15.065 --> 00:18:19.045 but it's not in the announcements about investment factories 344 00:18:19.185 --> 00:18:21.005 and so on, which I'm going to develop. 345 00:18:21.135 --> 00:18:22.325 Let's go back a minute 346 00:18:22.325 --> 00:18:24.285 to the financial structure of the company. 347 00:18:24.745 --> 00:18:28.005 The financial structure is assessed by two indicators. 348 00:18:28.455 --> 00:18:32.085 First debt as opposed to equity in book terms, 349 00:18:32.265 --> 00:18:35.445 so debt divided by equity, which you read in the bouncy 350 00:18:35.865 --> 00:18:38.005 or in market terms, which is debt divided 351 00:18:38.105 --> 00:18:39.685 by the market capitalization. 352 00:18:39.715 --> 00:18:40.965 This is a financial structure 353 00:18:41.545 --> 00:18:42.965 and the ability of the company 354 00:18:42.985 --> 00:18:45.725 to repay its debt is named the leverage is debt 355 00:18:45.725 --> 00:18:47.165 divided by EBD. 356 00:18:47.945 --> 00:18:50.605 If you look at both indicators for BYD, you understand 357 00:18:50.605 --> 00:18:54.645 that the company had quite a high leverage in 2000 358 00:18:54.645 --> 00:18:56.685 12, 14, 15, et cetera, 359 00:18:57.065 --> 00:18:59.765 and then the gearing dramatically went down. 360 00:19:00.145 --> 00:19:02.125 The leverage dramatically went down 361 00:19:02.425 --> 00:19:06.045 and you understand that today the company's indebtedness is 362 00:19:06.235 --> 00:19:10.925 extremely negligible as far as capital is concerned. 363 00:19:10.945 --> 00:19:13.565 The financial structure was a little bit more stable. 364 00:19:14.345 --> 00:19:18.005 On the graph you see some variability in the leverage. 365 00:19:18.005 --> 00:19:21.445 It's because it's due to a B, D, A on one side 366 00:19:21.545 --> 00:19:24.045 and debt, which is a bit negative, a bit positive, 367 00:19:24.385 --> 00:19:26.045 so this is why there's some variability, 368 00:19:26.225 --> 00:19:28.085 but you understand that the financial structure 369 00:19:28.085 --> 00:19:31.365 of the financial strategy of capital was no debt 370 00:19:32.025 --> 00:19:35.125 and today the gearing is a little bit negative. 371 00:19:35.795 --> 00:19:39.165 This is why net debt divided by a bid D is negative. 372 00:19:39.195 --> 00:19:41.965 It's not because EBD is negative, it is 373 00:19:41.965 --> 00:19:43.285 because debt is negative. 374 00:19:43.465 --> 00:19:46.405 So you understand that these two companies have another 375 00:19:46.405 --> 00:19:51.165 feature in common, very conservative financial strategies. 376 00:19:51.785 --> 00:19:54.365 Now when you have almost no debt in the balance sheet 377 00:19:54.385 --> 00:19:57.285 or a little bit negative gearing, your flexibility 378 00:19:57.825 --> 00:20:01.245 is at its maximum level and that's great 379 00:20:01.475 --> 00:20:04.645 because when you have some flexibility in your balance 380 00:20:04.645 --> 00:20:07.925 sheet, you have the ability to grasp opportunities 381 00:20:08.345 --> 00:20:10.085 and exercise growth options. 382 00:20:10.745 --> 00:20:12.205 Growth is about investment. 383 00:20:12.625 --> 00:20:15.805 The companies want to grow, they need to invest 384 00:20:16.105 --> 00:20:17.925 and the need is kind of flexibility 385 00:20:18.305 --> 00:20:21.525 so it's perfectly consistent in terms of business as opposed 386 00:20:21.525 --> 00:20:22.645 to financial strategy. 387 00:20:23.215 --> 00:20:26.725 Let's deep dive a little bit into the CapEx strategies 388 00:20:26.725 --> 00:20:27.725 of these two companies. 389 00:20:28.465 --> 00:20:31.445 In order to assess the CapEx strategy of a company, 390 00:20:31.935 --> 00:20:33.005 there are two indicators. 391 00:20:33.465 --> 00:20:36.285 One is CapEx as a percentage to revenues, 392 00:20:36.975 --> 00:20:38.885 which is about which percentage 393 00:20:38.885 --> 00:20:40.485 of your revenues you invest each 394 00:20:40.485 --> 00:20:42.925 and every year in developing the company. 395 00:20:43.425 --> 00:20:45.845 And the other one is about intensity. 396 00:20:46.675 --> 00:20:48.845 It's CapEx divided by depreciation. 397 00:20:48.845 --> 00:20:52.125 Depreciation is a memory of the investment you made 398 00:20:52.125 --> 00:20:55.405 during the last years and CapEx is a CapEx of the year, 399 00:20:55.425 --> 00:20:58.205 so you confirm the CapEx of the year with a CapEx 400 00:20:58.205 --> 00:21:00.845 of yesterday and when you are CapEx divided 401 00:21:00.865 --> 00:21:02.565 by depreciation is more than one 402 00:21:02.745 --> 00:21:04.805 and significantly more than one. 403 00:21:05.185 --> 00:21:09.285 It means that you are investing in capacity companies 404 00:21:09.425 --> 00:21:11.405 for which a ratio is about one. 405 00:21:11.555 --> 00:21:14.285 They are maturity, CapEx, depreciation, 406 00:21:14.545 --> 00:21:18.205 no increase in capacity, just productivity and maintenance. 407 00:21:18.205 --> 00:21:21.365 When the company's CapEx over depreciation is less than one, 408 00:21:21.865 --> 00:21:23.605 it means that the companies maybe 409 00:21:24.235 --> 00:21:27.245 only maintaining its manufacturing facilities 410 00:21:27.545 --> 00:21:30.885 and maybe outsourcing, but when it's greater than one it's 411 00:21:30.885 --> 00:21:32.365 about capacity and 412 00:21:32.365 --> 00:21:36.005 of course BY is extremely dynamic investing in production 413 00:21:36.005 --> 00:21:37.845 just to be able to serve the customers. 414 00:21:38.425 --> 00:21:41.565 Of course there is a period where CapEx is less, 415 00:21:41.675 --> 00:21:42.925 it's in 2020. 416 00:21:43.675 --> 00:21:44.685 This is about covid, 417 00:21:45.145 --> 00:21:47.485 but that's an accident that's an exception. 418 00:21:47.625 --> 00:21:50.045 The company is investing dramatically 419 00:21:51.545 --> 00:21:53.005 cattle, same story. 420 00:21:53.425 --> 00:21:56.605 The investment is a very high percentage to sales 421 00:21:56.625 --> 00:21:59.485 and revenues except during these two years, 422 00:21:59.705 --> 00:22:02.165 but we have observed that the company's volume 423 00:22:02.585 --> 00:22:04.845 and revenues are a little bit stabilizing. 424 00:22:05.545 --> 00:22:08.165 In the meantime, there is plenty of announcement 425 00:22:08.385 --> 00:22:11.845 for new factories in Spain, in Michigan, 426 00:22:12.265 --> 00:22:14.045 in Hungary and so on and so forth. 427 00:22:14.265 --> 00:22:16.485 It means that today is a kind of accident 428 00:22:16.665 --> 00:22:19.325 or temporarily we are down, 429 00:22:19.585 --> 00:22:21.805 but tomorrow it's going to be up again. 430 00:22:21.985 --> 00:22:24.965 To summarize the investment strategies of these companies, 431 00:22:25.475 --> 00:22:28.165 very high CapEx to revenue ratios 432 00:22:28.625 --> 00:22:31.045 and very high CapEx depreciation 433 00:22:31.545 --> 00:22:33.725 by far CapEx exceed depreciation. 434 00:22:33.825 --> 00:22:38.285 Though the companies are investing in production capacity 435 00:22:38.585 --> 00:22:39.925 and it's consistent with the fact 436 00:22:39.925 --> 00:22:41.365 that their revenues are growing. 437 00:22:42.215 --> 00:22:46.725 Maybe not today but tomorrow. Today is BYD. 438 00:22:47.165 --> 00:22:49.845 Tomorrow it's cattle. Plenty of announcements. 439 00:22:50.105 --> 00:22:53.525 We are going to build new plants to produce. 440 00:22:53.905 --> 00:22:55.845 The problem with growth is 441 00:22:55.845 --> 00:22:59.045 that it creates value if you are performing 442 00:22:59.105 --> 00:23:00.525 so if your rose is greater 443 00:23:00.625 --> 00:23:02.205 and your weight leverage cost of capital, 444 00:23:02.345 --> 00:23:06.405 but in any case, growth is consuming financial resources 445 00:23:06.625 --> 00:23:09.445 so you need to find the resources in order 446 00:23:09.505 --> 00:23:11.125 to fuel the growth of the company. 447 00:23:11.345 --> 00:23:14.725 The first resource which you can mobilize is the profit you 448 00:23:14.925 --> 00:23:16.485 generate in business operations 449 00:23:17.265 --> 00:23:19.125 and this is the one we prefer. 450 00:23:19.145 --> 00:23:21.445 We finance people. If you are performing today 451 00:23:21.445 --> 00:23:24.205 and generating nice profits today as a consequence 452 00:23:24.205 --> 00:23:27.245 of good investments you made yesterday, then you have plenty 453 00:23:27.385 --> 00:23:29.565 of money in your pocket today in order 454 00:23:29.585 --> 00:23:32.605 to finance the evolution of your capacity. 455 00:23:34.875 --> 00:23:36.215 But when you look at the p 456 00:23:36.215 --> 00:23:40.135 and l, you remember the return on sales is not skyrocketing 457 00:23:40.635 --> 00:23:43.055 and the return on sales is not outstanding. 458 00:23:43.835 --> 00:23:46.205 If you look at the evolution of of the operating expenses 459 00:23:46.745 --> 00:23:48.885 of BYD, what do you observe? 460 00:23:49.395 --> 00:23:53.845 Cost of sales, cost of goods sold 80 to 90%, 461 00:23:54.785 --> 00:23:57.445 not much in terms of economies of scale 462 00:23:58.005 --> 00:23:59.285 a little bit this last years, 463 00:23:59.345 --> 00:24:01.325 but it does not seem to be outstanding. 464 00:24:02.135 --> 00:24:05.965 There are some economies of scale in the indirect costs, s, 465 00:24:06.205 --> 00:24:08.965 g and a sales general and admin expenses 466 00:24:09.705 --> 00:24:14.365 and this went down by 1.5%, quite stable in terms 467 00:24:14.425 --> 00:24:17.005 of cost of sales and what about r and d? 468 00:24:17.225 --> 00:24:20.445 The company's massively investing in research development 469 00:24:20.545 --> 00:24:23.045 and innovation and as a consequence 470 00:24:23.625 --> 00:24:26.365 the figure went up not only in absolute terms 471 00:24:26.465 --> 00:24:28.005 but relative to revenues. 472 00:24:28.205 --> 00:24:32.205 R and d went up from 2.5% to 6% of revenue. 473 00:24:33.235 --> 00:24:36.645 This is why maybe the company is generating some economies 474 00:24:36.645 --> 00:24:37.805 scale for indirect cost. 475 00:24:37.805 --> 00:24:40.885 Maybe the cost of sales is a bit down when you know 476 00:24:40.885 --> 00:24:43.685 what you invest not only in tangible assets 477 00:24:43.945 --> 00:24:45.205 but also in innovation. 478 00:24:45.875 --> 00:24:47.045 Intangibles, r 479 00:24:47.045 --> 00:24:49.605 and d for cattle it's a little bit different story. 480 00:24:50.265 --> 00:24:53.285 The SGNA figure went dramatically up. 481 00:24:53.315 --> 00:24:57.085 They saved about 4.5%. What about the cost of sales? 482 00:24:57.145 --> 00:25:00.005 It went up dramatically at the very beginning 483 00:25:00.005 --> 00:25:04.805 of the story in 2019 to 2020 then there is a kind 484 00:25:04.805 --> 00:25:08.885 of stabilization and today some economies of scale r 485 00:25:08.885 --> 00:25:11.605 and d constant about 5% 486 00:25:11.665 --> 00:25:14.365 of revenues waste fluctuations obviously, 487 00:25:14.425 --> 00:25:16.765 but there is no specific trend. 488 00:25:16.985 --> 00:25:20.045 The companies investing a lot, plenty of patterns. 489 00:25:20.045 --> 00:25:23.125 You remember number eight in the world in 2023 490 00:25:23.465 --> 00:25:25.645 and the company is keeping on investing 491 00:25:25.645 --> 00:25:26.725 in research and development. 492 00:25:26.785 --> 00:25:28.125 Now you understand that the commercial 493 00:25:28.125 --> 00:25:29.885 profitability is not outstanding. 494 00:25:30.705 --> 00:25:33.085 If you want to finance your capital expenditures, 495 00:25:33.665 --> 00:25:36.405 you are going to calculate the free cash flow in which the 496 00:25:36.605 --> 00:25:38.045 resource is EBDA. 497 00:25:38.635 --> 00:25:41.965 What we discussed so far is the EBIT return on sales is EBIT 498 00:25:41.965 --> 00:25:43.205 divided by revenues. 499 00:25:43.745 --> 00:25:46.885 EBITDA A is EBIT before you deduct the precision 500 00:25:46.885 --> 00:25:50.405 and amortization the consequence of your past investment. 501 00:25:50.785 --> 00:25:54.285 The cash operating profit, which is EBDA, went down 502 00:25:54.545 --> 00:25:58.005 for cattle for a number of reasons, including the fact 503 00:25:58.005 --> 00:26:01.205 that the cost of sales was up and now he's stabilizing. 504 00:26:01.955 --> 00:26:03.285 What about BYD? 505 00:26:03.655 --> 00:26:04.725 Relatively stable, 506 00:26:05.145 --> 00:26:07.845 but it does not seem that these companies are privileging 507 00:26:08.055 --> 00:26:09.685 their p and l in the short run. 508 00:26:10.145 --> 00:26:13.765 The return on sales are quite stable or a little bit up, 509 00:26:14.185 --> 00:26:15.885 but it's absolutely not outstanding. 510 00:26:16.665 --> 00:26:19.765 The problem is that with your EBIT deal you have to be able 511 00:26:19.765 --> 00:26:21.845 to finance your working capital requirement 512 00:26:22.185 --> 00:26:23.645 and your capital expenditures. 513 00:26:25.765 --> 00:26:28.035 Let's have a look at the evolutionary working capital 514 00:26:28.035 --> 00:26:29.395 requirement, which is a consequence 515 00:26:29.395 --> 00:26:31.115 of managing your operating cycle. 516 00:26:31.855 --> 00:26:34.395 You remember that inventories plus receivables minus 517 00:26:34.515 --> 00:26:37.235 payables, it's a monnet which is stock in the operating 518 00:26:37.235 --> 00:26:39.595 cycle and we finance people we like very much. 519 00:26:39.595 --> 00:26:42.075 When you can reduce a working capital requirement 520 00:26:42.345 --> 00:26:45.325 because it's money which is no more in the operating cycle 521 00:26:45.425 --> 00:26:49.445 but invested in value generating non current asset 522 00:26:49.445 --> 00:26:52.125 investment factories, brands whatsoever. 523 00:26:52.465 --> 00:26:55.485 If you look at BYD, you understand that there was a very 524 00:26:56.165 --> 00:26:57.925 negative and then positive evolution 525 00:26:57.925 --> 00:26:59.405 of the cash conversion cycle. 526 00:27:00.185 --> 00:27:04.245 It was quite high up to 150 days of revenues. 527 00:27:05.095 --> 00:27:07.125 Today it's a bit less. Why? 528 00:27:07.125 --> 00:27:09.005 Because the company started managing 529 00:27:09.065 --> 00:27:10.085 its accounts receivable. 530 00:27:10.085 --> 00:27:11.565 It's nice to sell to your customers 531 00:27:11.585 --> 00:27:14.565 but it's even better to collect the money from them and 532 00:27:14.565 --> 00:27:18.245 because also the accounts payable dramatically went up 533 00:27:18.825 --> 00:27:21.885 it now 150 days, so 534 00:27:22.485 --> 00:27:24.885 suppliers were a little bit mobilized in order 535 00:27:24.985 --> 00:27:27.205 to reduce a working capital requirement. 536 00:27:27.695 --> 00:27:29.485 Today the cash conversion cycle 537 00:27:30.225 --> 00:27:32.725 is quite stabilized at the level which 538 00:27:32.725 --> 00:27:34.005 is a little bit negative. 539 00:27:34.625 --> 00:27:36.645 No problem, no more problem, 540 00:27:37.585 --> 00:27:40.925 but the working capital requirement is at breakeven. 541 00:27:41.205 --> 00:27:44.965 I would say same conclusion, not exactly the same process 542 00:27:45.145 --> 00:27:46.645 and dynamics for cattle, 543 00:27:47.265 --> 00:27:49.245 but what they have in common is the fact 544 00:27:49.245 --> 00:27:51.485 that the accounts payable went up, 545 00:27:51.975 --> 00:27:54.205 which is not very nice for the suppliers. 546 00:27:54.595 --> 00:27:58.085 Inventories went up and down and accounts receiv went down 547 00:27:58.085 --> 00:27:59.845 and it's quite stable for cattle, 548 00:28:00.545 --> 00:28:03.885 but again, the cash conversion cycle is a little bit 549 00:28:04.245 --> 00:28:07.485 negative stabilized, so it's no more problem 550 00:28:08.385 --> 00:28:11.405 and then the working capital requirement is quite stable, 551 00:28:11.825 --> 00:28:14.365 not consuming, not generating cash. 552 00:28:14.475 --> 00:28:17.685 Therefore both companies a working capital requirement is 553 00:28:17.685 --> 00:28:20.925 not a problem, it's not anymore a problem 554 00:28:21.825 --> 00:28:24.405 and we have to thank very much the nice 555 00:28:24.705 --> 00:28:28.485 and certainly happy contribution of the suppliers in terms 556 00:28:28.485 --> 00:28:32.965 of increase in the accounts payable just to wrap up on CapEx 557 00:28:33.025 --> 00:28:35.445 to revenues for BYD and cattle, 558 00:28:35.625 --> 00:28:38.485 but then on the same slide you understand that as far 559 00:28:38.485 --> 00:28:43.405 as BYD is concerned, CapEx is about 15% of revenues, 560 00:28:43.405 --> 00:28:45.445 which is quite high cattle. 561 00:28:45.545 --> 00:28:49.725 In the past it was a bit more than 25% it went down. 562 00:28:50.055 --> 00:28:53.605 It'll certainly go up the JU up to open the factories, 563 00:28:53.815 --> 00:28:56.925 which you announced $14 billion. 564 00:28:57.545 --> 00:29:00.805 Now the working capital requirement is close to zero, 565 00:29:01.345 --> 00:29:04.565 so the question is does EBDA fine on 566 00:29:04.565 --> 00:29:05.685 the capital expenditures? 567 00:29:06.105 --> 00:29:08.245 You simply divide EBDA by CapEx. 568 00:29:08.245 --> 00:29:11.125 If it's more than one, it means that e BDA is large enough 569 00:29:11.125 --> 00:29:14.285 so that your free cash flow is positive in the long term. 570 00:29:14.945 --> 00:29:16.885 So we compare the ratio with one 571 00:29:16.905 --> 00:29:20.165 and we understand that with very few exceptions, 572 00:29:20.825 --> 00:29:22.965 the ratio is less than one, 573 00:29:23.185 --> 00:29:26.325 so the PDA does not fine on the capital expenditures. 574 00:29:26.325 --> 00:29:27.765 Of course, when you stop CapEx 575 00:29:27.765 --> 00:29:31.445 because of covid, the A BDA is financing the CapEx 576 00:29:31.445 --> 00:29:34.725 because there's no CapEx anymore or something like that. 577 00:29:35.225 --> 00:29:39.125 Now in the last years the ratio is a little bit up. 578 00:29:39.355 --> 00:29:41.605 It's strictly greater than one for cattle. 579 00:29:42.115 --> 00:29:44.885 It's about one in 2024 for BYD, 580 00:29:45.145 --> 00:29:47.005 but you understand that at the end 581 00:29:47.005 --> 00:29:50.525 of the day the company's profitability is not very high, 582 00:29:51.185 --> 00:29:53.405 but the CapEx figure is very high 583 00:29:54.185 --> 00:29:56.605 and so you will need some extra additional 584 00:29:56.635 --> 00:29:57.845 financial resources. 585 00:29:58.245 --> 00:30:01.605 EBDA does not finance the industrial 586 00:30:01.655 --> 00:30:03.525 investment in the long term. 587 00:30:03.785 --> 00:30:05.525 Now, how do you finance your investment? 588 00:30:06.025 --> 00:30:08.605 You need external resources. 589 00:30:08.795 --> 00:30:12.525 When the internal resources are not smart enough 590 00:30:12.525 --> 00:30:16.485 to finance CapEx and Rev, you can ask the government 591 00:30:17.185 --> 00:30:18.485 and then there is an aid, 592 00:30:18.645 --> 00:30:21.285 a financial aid which comes from the state. 593 00:30:21.865 --> 00:30:24.605 We all know that it's about subsidies, 594 00:30:24.755 --> 00:30:28.365 it's about regulations, it's about infrastructure in order 595 00:30:28.385 --> 00:30:30.245 to support the development of your sales. 596 00:30:30.555 --> 00:30:33.525 It's about bringing some innovation, cash to finance, 597 00:30:33.525 --> 00:30:36.565 innovation, tax reductions and so on and so forth. 598 00:30:37.225 --> 00:30:40.005 Of course, a Chinese government supported the car 599 00:30:40.405 --> 00:30:41.725 industry quite a lot. 600 00:30:42.555 --> 00:30:45.685 It's obviously extremely difficult to give a figure, 601 00:30:45.695 --> 00:30:47.685 which is certainly the right figure. 602 00:30:47.935 --> 00:30:51.765 There are some estimates about $230 billion, 603 00:30:52.255 --> 00:30:55.605 which is quite a lot and it's quite interesting 604 00:30:55.605 --> 00:30:58.005 because on the one hand the Chinese government is 605 00:30:58.005 --> 00:30:59.085 supporting the industry. 606 00:30:59.545 --> 00:31:02.765 On the other hand, there is a fierce competition in China 607 00:31:03.345 --> 00:31:05.765 to try to identify who the winner is going 608 00:31:05.765 --> 00:31:06.845 to be in the future, 609 00:31:07.385 --> 00:31:10.045 but what is extremely interesting as far 610 00:31:10.045 --> 00:31:11.365 as BYD is concerned, 611 00:31:11.605 --> 00:31:15.485 BYD was a little bit in difficulties in 2017 612 00:31:15.545 --> 00:31:16.845 to 2019. 613 00:31:17.185 --> 00:31:20.365 The CEO said it were terrible euros for us 614 00:31:20.745 --> 00:31:23.125 and at that time the Chinese government 615 00:31:23.525 --> 00:31:24.605 provided some support. 616 00:31:25.435 --> 00:31:27.285 Your company, which is quite interesting 617 00:31:27.285 --> 00:31:29.005 for the country, you are in trouble. 618 00:31:29.615 --> 00:31:32.725 We're going to give you some oxygen so that 619 00:31:32.725 --> 00:31:36.605 during these difficult times you can recover a little bit 620 00:31:36.785 --> 00:31:38.045 and that's quite interesting 621 00:31:38.045 --> 00:31:41.725 because it significantly reduces the risk of the company. 622 00:31:42.505 --> 00:31:45.885 You can take a risk when you know that if you have taken 623 00:31:45.945 --> 00:31:48.965 and selected the right investment, you know that if 624 00:31:49.185 --> 00:31:52.805 by accident there are some difficult times, you are going 625 00:31:52.805 --> 00:31:56.405 to be supported by those people who are mutualizing. 626 00:31:56.545 --> 00:31:59.445 The risk at the country level, which is named the state, 627 00:32:00.265 --> 00:32:03.365 that's quite interesting in terms of industrial policy, 628 00:32:04.315 --> 00:32:07.045 it's just giving money when needed 629 00:32:07.275 --> 00:32:10.125 because there is an accident and you have to go through. 630 00:32:10.465 --> 00:32:13.805 Now we are closer to the conclusion you want to grow, 631 00:32:14.145 --> 00:32:18.205 you need financial resources, your profitability is modest, 632 00:32:18.555 --> 00:32:22.445 your rose is 15, it's certainly not enough 633 00:32:23.065 --> 00:32:24.925 and you have plenty of industrial ambitious. 634 00:32:25.265 --> 00:32:28.805 In the meantime, you keep a conservative financial policy. 635 00:32:29.315 --> 00:32:31.445 Know that in the balance sheet, so who is going 636 00:32:31.445 --> 00:32:32.445 to finance your growth? 637 00:32:32.825 --> 00:32:36.005 Not the bankers, but if it's not the bankers 638 00:32:36.465 --> 00:32:40.525 and if it's not your profitability inside, then 639 00:32:41.115 --> 00:32:42.525 it's about the shareholders. 640 00:32:43.265 --> 00:32:44.485 The dividend which is paid 641 00:32:44.485 --> 00:32:47.725 by both companies is a little bit positive but not that big. 642 00:32:47.785 --> 00:32:50.245 Of course, you're not going to waste your earnings 643 00:32:50.835 --> 00:32:52.365 returning the cash to shareholders, 644 00:32:52.465 --> 00:32:53.525 but then what's going to happen? 645 00:32:53.825 --> 00:32:54.885 You need your shareholders 646 00:32:55.425 --> 00:32:58.365 and then you need to have access to the equity market. 647 00:32:58.835 --> 00:33:03.445 This concept is named sustainable growth if you want to grow 648 00:33:04.025 --> 00:33:06.765 and if your profitability inside is not enough, 649 00:33:07.195 --> 00:33:09.205 it's bankers and it's a shareholders. 650 00:33:09.465 --> 00:33:12.285 If the bankers are out of the pictures, it's a shareholders. 651 00:33:12.335 --> 00:33:13.485 Let's go back to equity, 652 00:33:14.815 --> 00:33:18.095 B-Y-D-I-P-O In 2002 funds raised 653 00:33:18.755 --> 00:33:23.735 180 million Samsung in the battery business understanding 654 00:33:23.735 --> 00:33:27.935 that there was something big happening at BYD 2016. 655 00:33:28.245 --> 00:33:33.175 Samsung is injecting $450 million 2021 656 00:33:33.765 --> 00:33:37.575 open market equity issue, 1.8 billion 657 00:33:38.315 --> 00:33:42.175 2024, quasi equity perpetual bonds. 658 00:33:42.235 --> 00:33:43.455 So you issue the bonds 659 00:33:43.515 --> 00:33:46.175 and there is no termination date for that. 660 00:33:46.635 --> 00:33:50.935 $2 billion 20, 25. Hey folks, we need money. 661 00:33:51.605 --> 00:33:53.815 $5.6 billion 662 00:33:53.995 --> 00:33:56.975 and it's absolutely mechanical cattle. 663 00:33:57.555 --> 00:33:59.895 Recent IPO 2018, 664 00:34:00.155 --> 00:34:04.175 you remember the figure 760 million raised from capital 665 00:34:04.235 --> 00:34:07.655 market, a very big contribution 666 00:34:07.655 --> 00:34:12.055 of Hill House U-B-S-G-P, Morgan Honda car business, 667 00:34:12.795 --> 00:34:15.695 2.8 billion in 2020 668 00:34:16.355 --> 00:34:19.295 for premo valuation of 50 billion. 669 00:34:20.515 --> 00:34:23.695 Now the company is listed in the SHE stock market. 670 00:34:23.955 --> 00:34:26.895 It is very restricted in terms of investors portfolio. 671 00:34:27.195 --> 00:34:28.735 You have to broaden the scope 672 00:34:29.435 --> 00:34:32.935 and then it's no more a shares in Shanghai or in Xang. 673 00:34:32.935 --> 00:34:36.735 Zhen. It is H shares on the Hong Kong stock exchange 674 00:34:37.155 --> 00:34:38.975 and cattle announced that they are going 675 00:34:38.975 --> 00:34:40.615 to make a dual listing. 676 00:34:41.245 --> 00:34:45.975 Xang Zhen Hong Kong 2025 amount. Difficult to assess. 677 00:34:46.635 --> 00:34:48.615 The minimum as it is communicated 678 00:34:48.675 --> 00:34:50.695 by the company is 5 billion, 679 00:34:51.515 --> 00:34:54.855 but in the prospectus there are some comments which uh, 680 00:34:54.865 --> 00:34:57.815 might drive the equity issue up 681 00:34:57.815 --> 00:34:59.895 to $8 billion. 682 00:35:00.515 --> 00:35:01.655 You simply need that 683 00:35:01.655 --> 00:35:03.695 because you have to finance your growth, you have 684 00:35:03.695 --> 00:35:06.175 to finance your factories, your plans. 685 00:35:06.835 --> 00:35:10.495 Why are these capitals investing for the leadership? 686 00:35:11.195 --> 00:35:13.775 You remember the famous statement, Jeff Bezos, 687 00:35:14.115 --> 00:35:17.335 we will continue to make investment decisions in order 688 00:35:17.435 --> 00:35:19.935 to reach the long term market leadership, 689 00:35:20.335 --> 00:35:23.215 whatever the profit in the short run, whatever the opinion 690 00:35:23.235 --> 00:35:25.055 of Wall Street he added. 691 00:35:25.635 --> 00:35:27.935 So you want to invest because you are a leader. 692 00:35:28.155 --> 00:35:30.335 You want to be a leader in the long term, 693 00:35:31.035 --> 00:35:32.415 but if you invest, you're growing 694 00:35:32.915 --> 00:35:35.535 and if you're growing, you're consuming financial resources. 695 00:35:36.235 --> 00:35:37.685 Are you going to grow in China? 696 00:35:38.925 --> 00:35:40.445 Probably because the market is up, 697 00:35:40.945 --> 00:35:43.805 but that is also very much in their mind is the 698 00:35:43.805 --> 00:35:45.765 development overseas. 699 00:35:45.945 --> 00:35:49.085 And what is nice with overseas is that the prices 700 00:35:49.305 --> 00:35:51.445 for the vehicles are not exactly the same. 701 00:35:52.505 --> 00:35:53.805 On the picture here, 702 00:35:54.185 --> 00:35:57.365 you see two cars which are quite the same. 703 00:35:58.585 --> 00:36:02.045 It is the BYD ATO three. 704 00:36:02.735 --> 00:36:04.245 There is another name in China. 705 00:36:05.145 --> 00:36:06.965 Of course there are a little bit of differences 706 00:36:06.965 --> 00:36:09.765 because the regulations and constraints are a bit different. 707 00:36:09.985 --> 00:36:12.525 In China, the car is sold at the price, 708 00:36:12.525 --> 00:36:14.805 which is 17,000 US dollars. 709 00:36:15.505 --> 00:36:19.485 In Western Europe it is 47,000 US dollars. 710 00:36:19.505 --> 00:36:22.245 So you understand that behind the investment, 711 00:36:22.985 --> 00:36:25.485 of course the opex and the cost of sales are not going 712 00:36:25.485 --> 00:36:27.485 to be quite the same, but you have 713 00:36:27.505 --> 00:36:28.725 in mind this kind of profit. 714 00:36:29.185 --> 00:36:31.965 But in order to generate a profit tomorrow you have 715 00:36:31.965 --> 00:36:33.045 to invest today. 716 00:36:33.345 --> 00:36:34.645 If you want to invest today, 717 00:36:34.825 --> 00:36:36.405 you need the financial resources. 718 00:36:37.505 --> 00:36:41.525 The alternative could be debt. Oh, that is very risky. 719 00:36:42.635 --> 00:36:45.085 Then you select to go for shareholders equity. 720 00:36:45.145 --> 00:36:47.325 Ah, yes, but there is a dilution problems. 721 00:36:47.325 --> 00:36:50.245 This is why sometimes some companies they want 722 00:36:50.245 --> 00:36:54.325 to avoid equity issue because they don't want to be diluted. 723 00:36:54.395 --> 00:36:55.885 They don't want to lose the power. 724 00:36:56.195 --> 00:36:58.445 It's a case of some family businesses. 725 00:36:59.105 --> 00:37:02.525 But here, if you accept dilution, that's okay. 726 00:37:02.745 --> 00:37:04.965 And then you can finance your growth with equity. 727 00:37:05.865 --> 00:37:07.885 If you don't want to be diluted 728 00:37:07.985 --> 00:37:10.205 and if you don't want to take the risk of your debt 729 00:37:10.385 --> 00:37:12.045 and you have to grow 730 00:37:12.185 --> 00:37:13.605 and consume resources, 731 00:37:14.155 --> 00:37:16.525 then you could raise your prices in order 732 00:37:16.625 --> 00:37:19.125 to improve your margins and your rose 733 00:37:19.305 --> 00:37:20.925 and then you self-finance your growth. 734 00:37:21.105 --> 00:37:25.605 And fortunately the Chinese market is extremely competitive 735 00:37:26.105 --> 00:37:30.325 and it's impossible to increase your margins locally 736 00:37:30.435 --> 00:37:32.445 because the competition is fierce. 737 00:37:33.265 --> 00:37:35.885 And so at the end of the day, you have to go overseas. 738 00:37:36.185 --> 00:37:38.085 You want to invest, you want to be a leader. 739 00:37:38.665 --> 00:37:40.525 You don't want to take the risk in your debt, 740 00:37:40.745 --> 00:37:41.925 you accept the delusion. 741 00:37:42.065 --> 00:37:44.285 It is simply mechanical 742 00:37:45.745 --> 00:37:48.325 and you understand that the day you want 743 00:37:48.325 --> 00:37:49.765 to maximize your profit. 744 00:37:50.395 --> 00:37:53.405 Sometimes it is at the expense of the clients. 745 00:37:54.025 --> 00:37:57.245 You remember there are a few fills on the platform which are 746 00:37:57.245 --> 00:37:59.525 about, oh, there's inflation on the cost. 747 00:37:59.765 --> 00:38:01.325 I increase my prices, yes, 748 00:38:01.345 --> 00:38:05.165 but if I lose my clients, if I lose my volume, 749 00:38:05.865 --> 00:38:07.605 that's probably not a good idea. 750 00:38:07.705 --> 00:38:10.045 In terms of long term market leadership. 751 00:38:10.665 --> 00:38:13.565 If you are in a period of con querying your market share, 752 00:38:13.985 --> 00:38:17.405 forget about your short term profit, it's about long term. 753 00:38:18.185 --> 00:38:19.445 Ah, you look at the long term, 754 00:38:20.025 --> 00:38:22.045 but you also have to make money in the short term 755 00:38:22.105 --> 00:38:24.165 and if you don't make enough money in the short term, 756 00:38:24.465 --> 00:38:25.565 you need to go for equity. 757 00:38:26.235 --> 00:38:28.525 It's always this kind of tension of conflict 758 00:38:28.595 --> 00:38:31.605 between short term and long term decision taken. 759 00:38:32.185 --> 00:38:34.685 No debt equity delusion, no problem. 760 00:38:35.565 --> 00:38:40.365 Billions of dollars and not only for B, y, D and cattle. 761 00:38:40.555 --> 00:38:41.885 Last year, Jerry, 762 00:38:42.485 --> 00:38:45.925 a common factor in China is announcing the IPO 763 00:38:45.925 --> 00:38:47.405 and the Hong Kong stock exchange. 764 00:38:48.145 --> 00:38:51.085 The figures which are mentioned today are about 1 billion 765 00:38:52.065 --> 00:38:54.525 OMI in the smartphone business. 766 00:38:55.235 --> 00:38:59.725 They want to raise $5.5 billion in order 767 00:38:59.825 --> 00:39:01.885 to get into the EV business. 768 00:39:01.985 --> 00:39:04.965 So you understand that it's already densely populated 769 00:39:05.505 --> 00:39:06.845 and the crowd is growing. 770 00:39:07.355 --> 00:39:09.845 This is why you need quite a lot of equity 771 00:39:10.385 --> 00:39:14.765 and getting to overseas investment is probably a great idea. 772 00:39:15.915 --> 00:39:18.975 You understand that 5 billion seems to be a figure, 773 00:39:19.735 --> 00:39:21.055 a consensus in terms 774 00:39:21.055 --> 00:39:23.975 of equity issue in the car industry in China. 775 00:39:24.805 --> 00:39:25.595 Thank you very much.