westport innovations inc. presentation.pdf · for use only by the global investment research...

WESTPORT INNOVATIONS INC.

Presented by: Simon Fraser University

March 5, 2011

Content

Overview.………………………………………………

Positive Drivers.....………………………………….

Negative Drivers…….…………..…………………..

Valuation………….……………………………………

Simon Fraser University | March, 2011Disclaimer: This information is provided to you for informational purposes only and is intended for use only by the Global Investment Research Challenge.

Section

1

2

3

4

2

Overview

Positive Drivers

Negative Drivers

Valuation

Recommendation


3

Report Price

as ofDecember 3, 2010

$19.30

Target Price

$16.38

HOLD

TSE: WPT

Overview

Positive Drivers

Negative Drivers

Valuation

Westport Innovations


4

Formed in 1995, headquartered in Vancouver, Canada

Over 400 patent applications worldwide with over 200 issued patents

186 employees with 7 partners across the globe

Overview

Positive Drivers

Negative Drivers

Valuation

Natural Gas Engine Technology


5

Overview

Positive Drivers

Negative Drivers

Valuation

Joint Ventures & Partnerships


6

Westport Innovations Inc.

Juniper Engines

Cummins-Westport

Westport HD

Weichai-Westport

Overview

Positive Drivers

Negative Drivers

Valuation

Equity Financing


7

0

50

100

150

2000 2001 2002 2003 2004 2005 2006 2007 20082009

20102011

Increase to Share Capital ($M)

Overview

Positive Drivers

Negative Drivers

Valuation

Strong Foundation


8

Partnerships

Balance Sheet

Management

Economics

Overview

Positive Drivers

Negative Drivers

Valuation

Forecasted Fuel Prices


0

1

2

3

4

2000 2008 2015 2025 2035

20

08

US

D

Delivered Transportation Fuel Prices, 2000-2035

Natural gas

Diesel fuel

History Projections

9

Overview

Positive Drivers

Negative Drivers

Valuation

Government Incentives


USAIncome tax credits for natural gas re-fuelling

equipment

Excise tax credit to seller of CNG or LNG

NAT GAS Act?

ChinaConsumer rebates for

alternative fuel vehicles.

CNG Vehicles listed as encouraged industry

10

Overview

Positive Drivers

Negative Drivers

Valuation

Strategic Partnerships


Global Engine Producers

Global Truck Producers

1. Weichai2. Volvo3. Daimler4. Cummins5. CNHTC

1. Daimler2. Volvo3. Dongfeng4. Tata5. FAW

Overview

Positive Drivers

Negative Drivers

Valuation

Weichai Westport Inc.


Overview

Positive Drivers

Negative Drivers

Valuation

Adapting Business Model


13

Westport HD Diesel

Pmt Per month $4,000 $2,400

Maintenance CostPer mile

0.115 0.085

Annual mileageFuel Cost

100,000$2.10/DGE

100,000$3.60

Per month:

Fuel (at 5 mpg) $3,500 $6,000

Lease charge 4,000 2,400

Operating charge 958 708

TOTAL $8,458 $9,108

Savings $650 / month

Overview

Positive Drivers

Negative Drivers

Valuation

Management


Executive

Min

ing

Au

to

Fin

ance

Star

tup

Po

liti

cs

John Beaulieu (Chairman)

David Demers (CEO)

William Larkin (CFO)

Elaine A. Wong (EVP - Strategy)

Nicholas C Sonntag (EVP – Marketing)

Darren Seed (VP)

Melih Ogmen (VP)

W Chipman Johnston (Secretary)

14

Overview

Positive Drivers

Negative Drivers

Valuation

Sound Balance Sheet


15

Risk averse

Net Cash: $73 M

Strong liquidity

Cash ready for new ventures and research

Overview

Positive Drivers

Negative Drivers

Valuation

High Uncertainty


What is the future of

Westport?

Will companies adopt it?

More reliable

than diesel

engines?

Too expensive

?

Difficult to value

Enough fueling

stations?Is there a market?

16

Overview

Positive Drivers

Negative Drivers

Valuation

Market Resistance


17

Price

Psychology

Reliability

Overview

Positive Drivers

Negative Drivers

Valuation

Technical Complexity


Natural Gas Engine Diesel Engine

Double the price

Less power and torque

Requires special parts

Requires more maintenance

18

Overview

Positive Drivers

Negative Drivers

Valuation

Infrastructure Limits


Source: DOE as of September 16, 2010

19

Overview

Positive Drivers

Negative Drivers

Valuation

R&D Costs and IP Risk


Source: Westport

20

Overview

Positive Drivers

Negative Drivers

Valuation

Valuations


21

17.31 16.81

24.18

3.79 4.71

14.09

7.16 9.37

17.40

$0

$5

$10

$15

$20

$25

$30

P/S EV/S FCFF

$16.38

Overview

Positive Drivers

Negative Drivers

Valuation

Comparable Companies


22

Company Name EPSMarket Cap

($M)P/E P/S EV/Sales

Woodward Inc. 1.49 2,556.34 24.89x 1.75x 1.78x

Clean Energy Fuels Corp. -0.27 958.1 - 5.61x 5.17x

Fuel Systems Solutions Inc. 3.39 626.61 10.49x 1.23x 1.25x

China Automotive Systems Inc. 1.09 403.75 13.66x 1.23x 1.32x

Hydrogen Engine Center Inc. -0.11 2.42 - 1.78x 4.28x

Averages3/5

Positive909.45 16.35x 2.32x 2.76x

Westport Innovations Inc. -17.88 903.96 - 6.26x 4.70x

Overview

Positive Drivers

Negative Drivers

Valuation

Value Driver – Revenue Growth


CWI accounted for 92% of Westport’s total revenues in 2010

Wildcard projects include Weichai-Westport, Volvo Powertrain

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Service revenue

Parts revenue

Product revenue

23

Overview

Positive Drivers

Negative Drivers

Valuation

Product Revenue


Forecasted 20% annual growth in units shipped from 2011 – 2015

Unit price growth driven by refocus on HD segment

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Units shipped Unit price

24

Overview

Positive Drivers

Negative Drivers

Valuation

Cash Flow


Operating cash flow to break-even by 2013

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

2006 2008 2010 2012e 2014e

Operating Cash Flow

25

Overview

Positive Drivers

Negative Drivers

Valuation

FCFF Valuation


Cost of equity 11.18%

Cost of debt 8.10%

WACC 11.10%

Terminal growth rate 2.00%

PV of firm $ 658,187

Add: Cash & equivalents $ 211,461

Less: Debt $ 23,656

PV of equity $ 851,239

Outstanding options 2,091

# shares outstanding 48,929

Intrinsic value $ 17.40

26

Overview

Positive Drivers

Negative Drivers

Valuation

Sensitivity Analysis


Cost of capital8.3% 11.1% 13.9%

Terminal growth

1.5% 21.55 16.80 14.09

2.0% 22.76 17.40 14.45

2.5% 24.18 18.07 14.84

27

Gross Margin30.0% 35.0% 40.0%

GrowthStage CAGR

15.0% 5.06 7.79 10.52

20.0% 14.27 17.40 20.52

25.0% 24.69 28.26 31.84

Overview

Positive Drivers

Negative Drivers

Valuation

Summary


- +

Management

Early to market

Valuation

High Degree of

Uncertainty

28

Overview

Positive Drivers

Negative Drivers

Valuation

Catalysts


29

Conclusion to NAT GAS Act

Broader Market Adoption of Natural Gas Vehicles

Climbing price of oil

Growth in Asia/ Weichai JV

Overview

Positive Drivers

Negative Drivers

Valuation

Contact Information


Simon Fraser University

Beedie School of Business

500 Granville Street

Vancouver, Canada

Tel +1 (778) 782-5209

30

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Index of Slides


31

OverviewRecommendationCompany BackgroundEngine TechnologyJVs and PartnershipsEquity FinancingPositive DriversStrong FoundationForecasted Fuel PricesGovernment IncentivesStrategic PartnershipsWeichai Westport Inc.Adapting Business ModelManagementSound Balance SheetNegative DriversHigh UncertaintyMarket ResistanceTechnical ComplexityInfrastructure LimitsR&D Costs and IP RiskBreak-Even Point

ValuationsComparable CompaniesFCFF ValuationValue DriversRevenue GrowthProduct RevenueParts RevenueRevenue ForecastGross MarginOperating EfficiencyOperating Cash FlowWACC CalculationWorking CapitalNet InvestmentSensitivity AnalysisInvestment SummaryCatalystsDCF AssumptionsFinancial AnalysisKey RatiosCash Burn RateR&D ExpenseSegment Analysis

Pro Forma StatementsIncome StatementBalance SheetStatement of Cash FlowsOtherBoard of DirectorsManagementManagement CompensationBusiness OverviewPartnershipsGoing GreenUS Truck MarketCompetitorsEarly AdvantageCompetitive AnalysisGovernment IncentivesInternal RiskExternal Risk

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Investment Summary


– Neutral +

Industry

Engine Competition

Alternative Competition

Financial

Management

Risk

32

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2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E

Product

Units shipped 4,509 5,411 6,493 7,792 9,350 10,285 11,314 12,445 13,690 15,059

Unit shipped growth 15% 20% 20% 20% 20% 10% 10% 10% 10% 10%

Unit price 26.55 27.08 27.62 28.17 28.74 29.02 29.31 29.61 29.90 30.20

Unit price growth 2.0% 2.0% 2.0% 2.0% 2.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Product revenue 119,703 146,517 179,337 219,508 268,678 298,501 331,635 368,447 409,344 454,781

Parts 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 10.0%

% Previous 2-years' product sales

18% 18% 17% 16% 15% 14% 13% 12% 11% 10%

Parts revenue 36,865 39,915 45,257 52,137 59,827 68,346 73,733 75,616 77,009 77,779

Service 6,000 5,000 4,000

Total revenue 162,568 191,433 228,594 271,645 328,505 366,848 405,369 444,063 486,353 532,561

Source: Team B Student Research

Revenue Forecast


33

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0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Parts Revenue as % of Previous 2 Years’ Product Revenue

Parts Revenue


34

$0

$20,000

$40,000

$60,000

$80,000

$100,000

Parts Revenue

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Rolling 12 Month Basis


35

0%

5%

10%

15%

20%

25%

30%

35%

40%

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

2009 Q1

2009 Q2

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

2010 Q4

2011 Q1

2011 Q2

Revenue Gross Margin

AP

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IXFactor Rate Source

Beta 1.53 Bloomberg risk-adjusted 5-yr monthly beta

Rf 3.55% Bank of Canada 10-yr bond yield as of 1 Dec 2010

Risk premium 5.00%Market implied risk premiumSource: Damodaran (2010)

Cost of equity 11.18% Calculated using CAPM

Cost of debt 8.10% After tax interest rate on most recent debt offering

WACC 11.10% Weight-adjusted by market value of debt to equity


Discount Rate Calculation


36

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DCF Assumptions


Commodity Price Risk

Development Risk

development cost overruns

procurement delays

permitting issues

Operational Risk

Weather related

Unexpected changes in mineralogy

Currency Risks

37

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Discounted FCFF


38

2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

After-tax operating earnings (7,015) (12,391) (7,795) (579) 3,903 7,377 12,995 11,064 10,097 36,722

Less: Changes in non-cash

working capital (13,748) (13,292) (16,991) (20,626) (25,464) (17,454) (17,661) (17,891) (19,652) (14,723)

Less: Cap Ex - Depreciation (2,353) (1,185) (277) 290 671 (548) 815 490 473 479

Free cash flow to firm 9,086 2,086 9,473 19,758 28,696 25,379 29,840 28,465 29,276 50,967

Discount factor 1.11 1.23 1.37 1.52 1.69 1.88 2.09 2.32 2.58 2.87

Present value 8,177 1,690 6,908 12,968 16,953 13,495 14,282 12,263 11,352 560,094

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IXAccount Balances 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E

Non-cash current assets

Accounts receivable 18,216 21,450 25,614 30,437 36,809 41,105 45,421 49,757 54,495 59,673

Inventories 10,833 12,900 15,540 18,796 22,730 25,383 28,048 30,726 33,652 34,015

Prepaid expenses 1,567 1,880 2,254 2,703 3,242 3,887 4,662 5,591 6,704 8,040

Non-debt current liabilities

Accounts payable and accrued liabilities

15,416 18,357 22,114 26,747 32,346 36,121 39,914 43,724 47,888 48,404

Deferred revenue 1,657 1,973 2,377 2,875 3,477 3,883 4,291 4,700 5,148 5,637

Warranty liability 12,877 15,163 18,107 21,517 26,021 29,058 32,109 35,174 38,524 37,279


Schedule of Working Capital


39

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Schedule of Net Investment


40

2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

∆Sales/Cap Ex 20 20 20 20 20 20 20 20 20 20

Capital Expenditure 1,318 1,523 1,946 2,399 2,899 1,955 1,964 1,973 2,156 2,356

Depreciation 3,671 2,708 2,223 2,110 2,228 2,503 1,149 1,483 1,683 1,877

PPE 3,856 2,671 2,394 2,684 3,355 2,807 3,623 4,113 4,586 5,065

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Key Financial Ratios


-40%

-20%

0%

20%

40%

60%

80%

20

10

20

09

20

08

20

07

20

06

20

05

20

04

20

03

Return from Prior Year 2008 2009 2010Profitability

Revenues (CAD) 71.5 121.8 130.7

Gross Margin 31.5% 25.3% 31.6%

Net Income (CAD) -10.3 -24.4 -37.6

Net Profit Margin-

14.4%-

20.0%-

28.8%

Operation Efficiency

Return on Assets-

13.1%-

18.0%-

24.1%

Return on Equity-

34.6%-

40.1%-

44.3%Asset Turnover Ratio

0.91 0.90 0.84

Liquidity

Current Ratio 1.8 3.6 4.8

Quick Ratio 1.5 3.2 4.5

Leverage

Debt-Equity Ratio 1.7 1.2 0.8

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Cash Burn Rate


2009 Q3 – 2010 Q2 Total

Net Income -31.22

Add: Depreciation & Amortization 2.36

Other Non-Cash Adjustments 9.92

Changes in Non-Cash Capital 14.64

Cash Outflow -15.63

Monthly Burn Rate -1.30

Cash at 2010 Q2 71.59

Months of Burn Remaining 55.07

42

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R&D Expense


43

R&D Expense

Net Income

Net Income Without R&D

2003 37.29 -48.51 -11.22

2004 26.09 -37.72 -11.63

2005 18.42 -26.21 -7.79

2006 16.94 -16.86 0.08

2007 21.89 -11.31 10.58

2008 23.03 -10.32 12.71

2009 30.98 -24.43 6.55

2010 28.41 -37.64 -9.23

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Segment Analysis


Figure 8.2. Natural Gas Vehicle Growth by Region

Region Average Growth

Asia-Pacific 51.0%

Europe 15.8%

North America -0.1%

Latin America 23.5%

Africa 19.2%

Worldwide 27.5%

Source: IANGV

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Investment Risks


Figure 8.3. Incremental Engine Costs Over

Diesel

(in $US)

Sector (in thousand lb) Extra Cost

Light-duty (10 lb – 14 lb) 17,000

Medium-duty (14 lb – 26 lb) 40,000

Heavy-duty (26 lb +) 60,000

Source: EIA

Figure 8.4. Natural Gas Station in Each State

45

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Income Statement


46

2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Revenues 71,536 121,837 130,712 162,568 191,433 228,594 271,645 328,505 366,848 405,369 444,063 486,353 532,561

CoGS (49,023) (91,020) (89,352) (101,769) (121,181) (145,986) (176,569) (213,528) (238,451) (263,490) (288,641) (316,130) (319,536)

Gross profit 22,513 30,817 41,360 60,799 70,251 82,608 95,076 114,977 128,397 141,879 155,422 170,224 213,024

Research and development (23,026) (30,982) (28,411) (28,979) (29,559) (30,150) (30,451) (30,756) (31,064) (31,374) (31,688) (32,005) (32,325)

General and administrative (6,033) (8,575) (12,728) (15,430) (18,705) (22,675) (27,488) (33,322) (40,395) (48,969) (59,363) (71,963) (87,238)

Sales and marketing (10,550) (15,071) (18,102) (18,230) (29,436) (35,355) (35,606) (44,768) (47,058) (47,392) (51,824) (54,476) (54,862)

Depreciation and amortization (1,550) (1,978) (2,128) (3,671) (2,708) (2,223) (2,110) (2,228) (2,503) (1,149) (1,483) (1,683) (1,877)

Foreign exchange gain (loss) (1,287) (682) (348) (424) (424) (424) - - - - - - -

Interest income 1,316 1,882 383 1,713 3,538 3,878 3,956 5,409 6,017 7,607 8,628 9,741 13,259

Other non-operating income

(expense)5,095 9,033 (5,559) (8,591) (9,857) (11,123) (12,389) (13,655) (14,921) (16,187) (17,453) (18,719) (19,985)

EBIT (13,522) (15,556) (25,533) (12,814) (16,899) (15,465) (9,012) (4,343) (1,527) 4,415 2,239 1,118 29,996

Interest expense (1,266) (2,348) (3,208) (2,681) (2,777) (2,897) (576) (617) (660) (706) (756) (809) (866)

Pretax income (14,788) (17,904) (28,741) (15,495) (19,676) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130

Income tax recovery (expense) 4,473 (6,521) (8,895) (1,504) (2,235) - - - - - - - -

Net income (10,315) (24,425) (37,636) (16,999) (21,911) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130

Less: Abnormal gains (losses) 10,659 14,275 2,972 - - - - - - - - - -

Normalized income (20,974) (38,700) (40,608) (16,999) (21,911) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130

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Balance Sheet


47

2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e

Current assets

Cash and cash equivalents 22,762 82,619 105,851 211,461 192,116 191,894 192,455 209,803 235,032 268,771 305,162 345,581

Accounts receivable 7,028 6,417 11,570 18,216 21,450 25,614 30,437 36,809 41,105 45,421 49,757 54,495

Loan receivable 6,774 11,234 13,505 15,146 18,035 21,727 26,279 31,779 35,489 39,215 42,958 47,049

Inventories 9,020 13,982 8,175 10,833 12,900 15,540 18,796 22,730 25,383 28,048 30,726 33,652

Prepaid expenses 1,033 1,387 1,307 1,567 1,880 2,254 2,703 3,242 3,887 4,662 5,591 6,704

Other current assets 4,944 4,451 5,069 5,069 5,069 5,069 5,069 5,069 5,069 5,069 5,069 5,069

Total Current assets 51,561 120,090 145,477 262,292 251,449 262,098 275,740 309,431 345,965 391,186 439,262 492,551

Equipment, furniture and

leasehold improvements 3,685 7,712 6,209 3,856 2,671 2,394 2,684 3,355 2,807 3,623 4,113 4,586

Intangible assets 574 430 287 5,648 4,518 3,389 2,259 1,130 - - - -

Goodwill - - - 8,665 8,665 8,665 8,665 8,665 8,665 8,665 8,665 8,665

Future income tax assets 4,366 5,337 4,144 4,144 4,144 4,144 4,144 4,144 4,144 4,144 4,144 4,144

Other long-term assets 18,754 1,935 - - - - - - - - - -

Total long-term assets 27,379 15,414 10,640 22,313 19,998 18,592 17,752 17,294 15,616 16,431 16,922 17,395

Total Assets 78,940 135,504 156,117 284,606 271,448 280,690 293,491 326,725 361,582 407,618 456,184 509,945

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Balance Sheet


48

2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e

Current Liabilities

Accounts payable and

accrued liabilities 8,470 14,359 13,902 15,416 18,357 22,114 26,747 32,346 36,121 39,914 43,724 47,888

Deferred revenue 205 546 891 1,657 1,973 2,377 2,875 3,477 3,883 4,291 4,700 5,148

Demand instalment loan 5,776 4,642 3,295 - - - - - - - - -

Short-term debt 5,995 1,614 163 200 - - - - - - - -

Current portion of long-

term debt 54 17 139 14,003 81 1 - - - - - -

Current portion of warranty

liability 4,899 12,222 12,082 12,467 14,845 17,884 21,630 26,158 29,211 32,278 35,359 38,727

Obligation to issue warrants 4,000 - - - - - - - - - - -

Total Current liabilities 29,399 33,400 30,472 43,744 35,257 42,376 51,253 61,981 69,215 76,483 83,784 91,763

Warranty liability 4,258 12,369 9,199 10,717 12,762 15,374 18,595 22,487 25,112 27,748 30,397 33,292

Long-term debt 8 11,353 12,936 9,452 9,720 10,080 - - - - - -

Other long-term liabilities 1,496 4,821 5,271 36,977 51,906 69,417 89,789 113,362 140,547 172,969 210,104 252,682

Total liabilities 49,144 74,546 71,222 100,891 109,644 137,247 159,637 197,830 234,873 277,201 324,285 377,737

Share capital 258,202 311,855 376,710 492,529 492,529 492,529 492,529 492,529 492,529 492,529 492,529 492,529

Other equity instruments 3,079 12,319 12,293 12,293 12,293 12,293 12,293 12,293 12,293 12,293 12,293 12,293

Additional paid in capital 5,097 5,263 5,260 5,260 5,260 5,260 5,260 5,260 5,260 5,260 5,260 5,260

Accumulated deficit (247,460) (271,885) (309,521) (326,520) (348,431) (366,792) (376,380) (381,340) (383,527) (379,818) (378,335) (378,026)

Accumulated other

comprehensive income 10,878 3,406 153 153 153 153 153 153 153 153 153 153

Total Shareholders' equity 29,796 60,958 84,895 183,715 161,804 143,443 133,855 128,895 126,708 130,417 131,900 132,208

Total Liabilities and Equity 78,940 135,504 156,117 284,606 271,448 280,690 293,491 326,725 361,582 407,618 456,184 509,945

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Statement of Cash Flows


49

2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Cash flows from operating

activities

Loss for the year (10,315) (24,425) (37,636) (16,999) (21,911) (18,361) (9,588) (4,960) (2,186) 3,709 1,483 309 29,130

Items not involving cash

Depreciation and amortization 1,550 1,978 2,128 3,671 2,708 2,223 2,110 2,228 2,503 1,149 1,483 1,683 1,877

Joint Venture Partners' share of

net income from joint ventures 5,564 4,221 7,453 8,591 9,857 11,123 12,389 13,655 14,921 16,187 17,453 18,719 19,985

Changes in non-cash operating

working capital 1,795 16,349 3,028 (5,380) 2,066 2,634 3,570 3,776 2,264 2,149 2,008 2,096 972

Other (14,393) (7,399) 2,974 6,261 6,201 7,518 9,113 11,048 13,393 16,235 19,682 23,859 28,923

(15,799) (9,276) (22,053) (3,857) (1,078) 5,136 17,593 25,747 30,894 39,429 42,108 46,666 80,887

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Statement of Cash Flows


50

2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Cash flows from investing

activities

Purchase of equipment,

furniture and leasehold

improvements

(1,081) (5,904) (256) (1,318) (1,523) (1,946) (2,399) (2,899) (1,955) (1,964) (1,973) (2,156) (2,356)

Long-term investments 17,977 19,379 3,811 - - - - - - - - - -

Loan receivable (6,774) (1,641) (4,789) (1,641) (2,889) (3,692) (4,552) (5,501) (3,709) (3,726) (3,743) (4,091) (4,470)

Other investing activities 7,150 (28,199) 8,753 - - - - - - - - - -

17,272 (16,365) 7,519 (2,960) (4,412) (5,638) (6,951) (8,400) (5,664) (5,691) (5,716) (6,248) (6,826)

Cash flows from financing

activities

Short-term debt 10,158 (6,413) (2,552) (3,258) (200) - - - - - - - -

Long-term debt (6,814) 13,891 (47) (135) (13,655) 280 (10,081) - - - - - -

Share issuance 1,041 53,024 59,999 115,819 - - - - - - - - -

Other financing activities - (9,259) (4,218) - - - - - - - - - -

4,385 51,243 53,182 112,426 (13,855) 280 (10,081) - - - - - -

Increase in cash and cash

equivalents 5,858 25,602 38,648 105,610 (19,345) (222) 562 17,347 25,230 33,738 36,391 40,419 74,061

Cash and cash equiv,

beginning of year 23,081 22,762 82,619 105,851 211,461 192,116 191,894 192,455 209,803 235,032 268,771 305,162 345,581

Cash and cash equiv, end of

year 22,762 82,619 105,851 211,461 192,116 191,894 192,455 209,803 235,032 268,771 305,162 345,581 419,642

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Management Compensation


Name Position WPT Start Date

Total Compensation

ExerciseableOptions

UnexercisableOptions

John A Beaulieu Chairman Sep-97 246,154

David Demers CEO/Co-Founder

Mar-95 805,313 950,557 639,296

William Edward Larkin

CFO Feb-10 246,154

Elaine A Wong Exec VP: Strategic Development

Sep-01 495,124 316,410 581,168

Nicholas C Sonntag

Exec VP: Corporate Development

Oct-06 584,997 111,818 181,038

Darren Seed VP: Investor Relations & Comm

Melih Ogmen VP: Fuel Systems & Supply Chain

449,271

W Chipman Johnston

Secretary

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Extensive Experience


Sara Liao SauFormer Secretary for the Environment, Transport and Works of Hong Kong

John Beaulieu, ChairmanExperienced in financing and assisting growth of more than 70 emerging technology firms

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Board of Directors – Key Members

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Dezsö J. HorváthDean of Schulich School of Business, York University, named AIB International Den of the year

M.A. Jill BodkinFounding Chair of the British Columbia Securities Commission, Former Ernst & Young Corporate Finance Partner

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Board of Directors – Key Members

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Bill. E. Larkin,CFOFormer CFO of Fuel Systems Solutions, Inc. and DDi Corp., auditor at Deloitte & Touche LLP

David R. Demers, CEOCEO since 1995, background in both physics and law, on board of directors from Primero Mining Corp. and CWI

54

Management

Elaine A. Wong, Exec. VPFormer CFO of Westport, extensive experience in international strategic planning in Canada and Asia

Nicholas C. Sonntag, Exec. VPPresident, Westport Asia and Europe. Former President of CH2M Hill in China and Canada,

W. Chipman JohnstonCorporate Secretary for Westport, Partner of Bennett ones LLP, experience in M&A

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Business Overview


• Develops technologies which convert diesel engines to run on natural gas.

• Establishes partnerships with OEM’s

• Operates globally but currently derives majority of revenue from US market which only makes up 1.3% of NGV market.

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Partnerships


Partnerships

Global Engine Producers Rank Partnership

Weichai 1 YES

Volvo 2 YES

Diamler 3 -

Cummins 4 YES

CNHTC 5 -

Global Truck Producers Rank Partnership

Daimler 1 YES

Volvo 2 YES

Dongfeng 3 YES

Tata 4 YES

FAW 5 -

Source(s): Westport November Presentation, AutomoticeWorld.com

• Established partnerships with industry leaders

• Only profitable venture is CWI

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Going Green


Figure 5.4 Fossil Fuel Emission Levels (Lb / Billion Btu of Energy Input)

Pollutant Natural Gas Oil Coal

Carbon Dioxide 117,000 164,000 208,000

Carbon Monoxide 40 33 208

Nitrogen Oxides 92 448 457

Sulfur Dioxide 1 1,122 2,591

Particulates 7 84 2,744

Mercury 0 0.007 0.016

Source: EIA - Natural Gas Issues and Trends 1998

“…natural gas is the cleanest fossil fuel and a highly efficient form of energy.” ~pickensplan.com

• Worldwide use of natural gas vehicles has grown 27.5% per year since 2000.

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US Truck Market


Thousands of Trucks

1992 1997 2002

Light Trucks (in thousand lb)

Less than 6 lb 50,545.7 62,798.4 62,617.3

6 to 10 lb 4,647.5 5,301.5 17,142.3

Medium Trucks (in thousand lb)

10.0 to 14.0 lb 694.3 818.9 1,142.1

14.0 to 16.0 lb 282.4 315.9 395.9

16.0 to 19.5 lb 282.3 300.8 376.1

Light-heavy Trucks (in thousand lb)

19.5 to 26.0 lb 732.0 729.3

Heavy Trucks (in thousand lb)

26.0 to 33.0 lb 387.3 427.7 436.8

33.0 to 40.0 lb 232.6 256.7 228.8

40.0 to 50.0 lb 338.6 399.9 318.4

50.0 to 60.0 lb 226.7 311.4 326.6

60.0 to 80.0 lb 781.1 1,069.8 1,178.7

80.0 to 100.0 lb 33.3 46.3 68.9

100.0 to 130.0 lb 12.3 17.9 26.4

130.0 lb or more 4.6 5.9 6.3

Not reported <50 <50 NA

ALL trucks 59,200.8 72,800.3 85,174.8

Source(s): 1992, 1997, 2002: U.S. Census Bureau

• 42% increase in overall number of trucks during ten year period.

• 28% increase in Heavy Trucks.

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Competitors


Westport Innovations Business Units

Heavy Duty Medium Light dutyR&D

Services

Westport HD CWI Juniper Westport

Weichai, Volvo, Daimler, CumminsAdvanced Fuels Technologies,

PrinsAutogassystemen

Fuel Systems Solutions Inc.

Landi Renzo

Revenues ROE

Westport 130,710,000 -51.61

Competitors

Diesel

Weichai 14,425,690,000 34.5

Volvo 193,063,000,000 -19.57

Daimler 26,808,000,000 -8.59

Cummins 6,405,000,000 12.22

Natural Gas

Fuel Systems Solutions 453,320,000 25.1

Landi Renzo 270,770,000 16.8

*Data in USD for FY 2009

Source: Bloomberg

Westport faces robust competition from established diesel engine manufacturers

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Operating Efficiency


Sharp decline in contribution margin in 2010 due to:

New emissions standards, requiring redesigned components

Transition to new suppliers

-50.0%

0.0%

50.0%

100.0%

150.0%

2006 2007 2008 2009 2010

∆CoGS/∆Revenues

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Early Advantage


Founding at UBC

Westport’s Advantages

Early to market

Highlight of some tech

Relationships

Partners / Suppliers

Customers

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Competitive Analysis


Competitive Rivalry

Moderate

Threat of New Entrants

Low

Power of Buyers

Moderate

Threat of Substitutes

High

Power of Suppliers

Low

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Government Incentives


Income tax credits for natural gas refuelling equipment

Excise tax credit to seller of CNG or LNG

Income tax credits for alternative fuel vehicles

NAT GAS Act

“I think that the odds are low in a lame duck session” David Demers, CEO (Q2 2011 Earnings Call)

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High Internal Risk


Financial risks

High R&D costs

Takeover risk due to excess cash

Adoption risks

Lack of infrastructure

Psychology risk

Technology risks

R&D and intellectual capital expiration

New technology

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High External Risk


Management risk

High exposure to JV and partnership risk

Legislative and environmental risk

Demand affected by natural gas act

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Free Cash Flow


66

2010 2011 2012 2013 …Terminal

2020

After-tax operating earnings

(28,904) (7,015) (12,391) (7,795) 36,722

Less: Changes in non-cash working capital

(3,400) (13,748) (13,292) (16,991) (14,723)

Less: Cap Ex -Depreciation

(1,872) (2,353) (1,185) (277) 479

Free cash flow to firm (23,632) 9,086 2,086 9,473 50,967

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Break-Even Point


67

Continued revenue growth and operating efficiency improvements lead to break-even in operating earnings by 2015

Net income could become positive by 2017

-$50,000

-$40,000

-$30,000

-$20,000

-$10,000

$0

$10,000

$20,000

2006 2008 2010 2012e 2014e 2016e 2018e

Operating Income (EBIT) Normalized income

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Leasing Program


68

Original Program

Purchasing program

One amortization period based on base truck chassis

Upfront capital cost

New Program

Leasing program

Price components with different amortization periods

Payment over the life of lease on per mile basis

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Global Relationships


69

Vancouver

Vancouver

Sweden

China

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Stock Price Movement


70

0.00

5.00

10.00

15.00

20.00

25.00

Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011

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Natural Gas Consumption


71

0.0

0.5

1.0

1.5

2.0

2.5

3.0

19

97

19

99

20

01

20

03

20

05

20

07

20

09

Natural Gas: Vehicle Consumption(Billion Cubic Feet)

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