EARNINGS CALL PRESENTATION - Q4 2016 - FEBRUARY 9, 2017 - BORGWARNER
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Earnings Call Presentation
Q4 2016
February 9, 2017Safe Harbor Statement Statements contained in this presentation may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could,“ "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "initiative," "intends," "outlook,“ "plans," "potential," "project," "pursue," "seek," "should," "target," "when," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements, other than statements of historical fact, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. These statements are based on assumptions and analysis made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance and the Company's actual results may differ materially from those expressed, projected or implied in or by the forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this document. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control and include risks noted under Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and in other reports that we file with the Securities and Exchange Commission. We do not undertake any obligation to update or announce publicly any updates to or revision to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements. This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity, financial condition and prospects. © BorgWarner Inc. 2
Agenda
James Verrier – President and Chief Executive Officer
Macro Outlook and Industry Perspective
2016 Recap and 2017 Outlook
Recent Product Announcements
Ron Hundzinski – Chief Financial Officer
Q4 2016 Results
2017 Guidance
Q&A
© BorgWarner Inc. 3Industry Perspective
and Company Update
James Verrier, President and Chief Executive OfficerMacro Outlook and Industry Perspective General Comments Market Outlook Regulatory/Technology Trends © BorgWarner Inc. 5
2016 Recap and 2017 Outlook 2016 organic growth toward the high end of our guidance range and solid operating performance 2017 Guidance remains unchanged Strongly positioned to achieve mid to high single-digit organic growth over the long-term © BorgWarner Inc. 6
Recent Product Announcements
Electric Drive Advanced Silent chains Advanced Engine
Module (eDM) wastegate for Suzuki’s Solio Timing System
hybrid vehicle. for Alfa Romeo 2.0-liter
with integrated turbocharging
gasoline engine.
eGearDrive® technology
transmission for HEVs from
in two pure electric BYD Auto Industry
vehicles from a major Company Limited.
Chinese automaker.
© BorgWarner Inc. 7Earnings Review and
Financial Outlook
Ron Hundzinski, Chief Financial OfficerReconciliation to US GAAP
$ in millions, except per share data
Non-US
GAAP
(Excluding
non-
comparable
Items,
US GAAP Asset Etatech Asbestos Restructuring Pension Tax including
(Reported) Impairment Impairment IBNR Expense Settlement M&A Expense Adjustments M&A)
2016 Q4
Sales $2,259.0 $2,259.0
Operating (458.0) (20.6) (12.6) (703.6) (4.8) 283.6
income
% of sales (20.3%) 12.6%
Diluted EPS $(1.39) $(0.12) $(0.04) $(2.07) $(0.02) $0.02 $0.85
2015 Q4
Sales $2,123.1 $2,123.1
Operating 200.5 (24.4) (25.7) (17.9) 268.5
income
% of sales 9.4% 12.6%
Diluted EPS $0.56 $(0.11) $(0.07) $(0.06) $0.03 $0.78
© BorgWarner Inc. 9BorgWarner Net Sales
Q4 2015 to Q4 2016, $ in millions
$139 ($40) $37 $2,259
$2,222
$2,123
Q4 2015 net Market growth, FX Q4 2016 net Remy incremental Q4 2016 net
sales price and net new sales from net sales sales
business continuing
operations
* % change to net sales 6.6%* 1.7%*
© BorgWarner Inc. 10BorgWarner Operating Income*
Q4 2015 to Q4 2016, $ in millions
$24 ($8)
$285 ($1) $284
$269
17% incremental
margin
12.6% 12.8% 12.5%
margin margin margin
Q4 2015 Market growth, FX Q4 2016 Remy incremental Q4 2016
operating income* price, net new operating income operating operating income*
business and from continuing income**
performance operations
* Operating income as shown on this slide is non-US GAAP. See slide 3 for reconciliation to US GAAP
** Includes impact of Remy operating income or Adjusted EBIT, synergies and purchase price accounting adjustments
© BorgWarner Inc. 11Engine Segment Net Sales & Adjusted EBIT
Q4 2015 to Q4 2016, $ in millions
$1,397 $18 $1,387
1.3%* ($28)
Q4 2015 net sales Market growth, price and net new business FX Q4 2016 net sales
$24 $248
$230
($6)
133% incremental
margin
Q4 2015 adjusted EBIT Market growth, price, net new business and FX Q4 2016 adjusted EBIT
performance
* % change to net sales
© BorgWarner Inc. 12Drivetrain Segment Net Sales & Adjusted EBIT
Q4 2015 to Q4 2016, $ in millions
$37 $883
$124 $846
$735 ($12) 5.0%*
16.9%*
Q4 2015 net sales Market growth, price and net FX Q4 2016 net sales excluding Remy incremental net sales Q4 2016 net sales including
new business Remy Remy
$13
$92 $91
($2)
($1)
$81
11% incremental
margin
Q4 2015 net adjusted EBIT Market growth, price, net new FX Q4 2016 adjusted EBIT Remy incremental adjusted Q4 2016 adjusted EBIT
business and performance excluding Remy EBIT* including Remy
* % change to net sales
© BorgWarner Inc. 13Asbestos-Related Charge
$441 million after tax charge on account of indemnity and defense
costs for pending and future asbestos-related claims.
One-time non-cash charge
Undiscounted reasonable estimate of indemnity and defense costs.
The cash costs already reflected in the company’s strong cash
generation.
© BorgWarner Inc. 142017 Full Year Guidance © BorgWarner Inc. 15
Organic Sales Growth of 3.5% - 6.0%
$ in millions
$590 ($50)
($100)
$9,071 ($320)
$8,942 $8,942
$235 $8,836 $410
2016 net sales Remy 2016 Proforma Backlog Market FX 2017 net sales
including Remy Aftermarket Growth/Pricing
AM Impact
© BorgWarner Inc. 16Operating Margins Expand by 40-50 bps
$ in millions
$89 $10
$1,163
($10)
($40)
$1,127
$1,114 $53 $1,123
13.1%
margin
2016 preliminary Market growth, Performance and Headwinds from FX 2017 operating
operating income price and backlog other corporate costs income
and raw material
12.7% - 12.8%
12.3% Margin Margin
© BorgWarner Inc. 172017 Guidance - Other Items EPS Guidance $3.35-$3.45 Free Cash Flow $450-$500 million CapEx $475-$525 million Share Repurchases $100+ million R&D Spending ~4% of sales Tax Rate ~32% $ / Euro Exchange Rate $1.05 © BorgWarner Inc. 18
2017 First Quarter Guidance © BorgWarner Inc. 19
Organic Sales Growth of 2.5% - 6.5%
$ in millions
$150 $(10)
$70
$2,270 ($40)
$2,200 $100 $(30) ($60) $2,240
Q1 2016 net Remy Q1 2016 Backlog Market FX Q1 2017 net
sales including Aftermarket Proforma Growth/Pricing sales
Remy AM Impact
© BorgWarner Inc. 20Q1’17 EPS Impacted by Timing of Costs
$ in millions
$0.06
$0.02 $0.85
$0.83 $0.03 ($0.04) $0.81
($0.03)
Q1 2016 EPS Market growth, Headwinds from FX Lower share Q1 2017 EPS
price, net new corporate costs, count, net of from continuing
business and raw material higher taxes operations
performance timing and other
© BorgWarner Inc. 21Thank you! © BorgWarner Inc. 22
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