ACADEMIC YEAR: 2010-2011
COURSE: Business Analysis to Valuation
FINANCIAL ANALYSIS HARLEY DAVIDSON PROJECT
1. Transportation Sector Trends
The global market for motorcycles, scooters and mopeds is forecast to reach 75 million units by the year 2015, driven by growing urbanization, rising population and government policies. Fuelefficiency, pricing and style are other factors powering growth in the worldwide two-wheelers market. In developed countries, motorcycles and scooters are considered a luxury good. In contrast, developing markets in Asian and Latin American countries view two-wheeled transport as an essential means of transportation. These regions are expected to remain the most promising markets for poweredtwo-wheel transit.
However, in order to reach desired levels of growth, the motorcycle industry must first recover from the effects of recent years. The economic crisis had significant impacts across the board; it restricted disposable income as well as access to low-interest credit. Between 2007 and 2008, the growth rate in two-wheeled purchases fell from 10.6% to 6.6%. The drop worsened in 2009 toa negative growth rate and was expected to follow a similar path in 2010.
The impact of the recession was much more severely felt in developed and mature markets of North America, Japan and Europe, featuring high double-digit declines in 2008 and 2009. On the other hand, developing economies namely Latin America and Asia-Pacific fared relatively better, recording marginal fall in growth rates.Of all potential motorcycle markets, Asia-Pacific seems the most promising according to a new market research report on motorcycles, scooters and mopeds. Within this region, China, India, Indonesia, Taiwan, Vietnam and Thailand offer vast, untapped and fast growing populations potential markets. While there is growth in other regions like the Middle East, Latin America and Africa, current datasuggests that Asia-Pacific drives new demand for motorcycles and scooters and will continue to have the fastest growth rate through 2015.
Within Europe, the dynamic is changing within the premium motorcycle market. The past dominance of Japanese manufacturers has diminished as, smaller, more aggressive European manufacturers have managed to grab unprecedented market share. Ducati is gainingmarket share in the 750cc-and-over sports bike market (as defined by the Motorcycle Industry Council) and reached a record 8.5 percent in 2009. Triumph and BMW are also claiming increased market share. Lifestyle-oriented brands like Harley-Davidson, Ducati and Triumph are companies that are not suffering the market share reduction.
2. Selection of Benchmark Companies
3.1. FordAlthough Ford does not sell motorcycles, it provides some context for the automotive sector. As such, the operating margins and production capacity share some resemblance. Harley and Ford are both subject to the same external forces such as government legislation, union demands, and rising gas prices. They both have high fixed costs that require a minimum level of demand to cover. In addition,Harley Davidson and Ford have specialized operations related to financing their customers that is essential to their business. Both have traditionally had a strong market share in the United States and have started in recent years to look towards emerging markets for expansion. Due to the recession, Ford has also been forced to scale back to the most profitable product lines and engage in certainrestructuring measures.
Ford serves as a reference point in terms of operations ratios and certain cash ratios. In general, they corroborate economic trends in the transport sector. Despite these similarities, the massive scale of Ford and its different portfolio of products makes the comparison with HD of varying relevance.
To round out our analysis, we also examined...