EARNINGS CALL PRESENTATION - Q4 2017 - FEBRUARY 8, 2018 - BORGWARNER
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Earnings Call Presentation
Q4 2017
February 8, 2018
Safe Harbor Statement Statements contained in, or incorporated by reference into this presentation, future filings by us with the Securities and Exchange Commission (“SEC”), and oral statements made by, or with the approval of, our authorized personnel, that relate to our future performance or future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such statements can be identified by use of forward- looking words or phrases such as “intend,” “anticipate,” “plan,” “estimate,” “target,” “aim,” “forecast,” “project,” “expect,” “believe,” “we are optimistic that we can,” “current visibility indicates that we forecast,” “contemplation” or “currently envisions” and similar phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, our expectations may not prove to be correct. Forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control, which could cause actual results to differ materially from those suggested by the forward-looking statements. These risks and uncertainties, among others, include: our dependence on automotive and truck production, both of which are highly cyclical; our reliance on major OEM customers; commodities availability and pricing; supply disruptions; fluctuations in interest rates and foreign currency exchange rates; availability of credit; our dependence on key management; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims; and future changes in laws and regulations in the countries in which we operate. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All subsequent written and oral forward-looking statements concerning the matters addressed in this presentation and attributable to us or any person acting on our behalf are qualified by these cautionary statements. Forward- looking statements are based on current expectations only and are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions. We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. In addition, some factors are beyond our control. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. © BorgWarner Inc. 2
Reconciliation to US GAAP
Q4 2016 to Q4 2017 Asset Non-US GAAP
Impairment & Asbestos Intangible (Excluding non-
$ in millions, except per share data
US GAAP Loss on Restructuring M&A IBNR Asset Tax Reform Other Tax comparable Items,
(Reported) Divestiture Expense Expense Expense Impairment Adjustments Adjustments including M&A)
2017 Q4
Sales $2,586.4 $2,586.4
Gross Profit 565.9 (2.1) 568.0
GP % of sales 21.9% 22.0%
Operating income 209.0 (71.0) (42.5) (5.7) 328.2
OI % of sales 8.1% 12.7%
Diluted EPS ($0.70) $0.25 $0.16 $0.02 $1.29 $0.04 $1.07*
2016 Q4
Sales $2,259.0 $2,259.0
Gross Profit 501.0 501.0
GP % of sales 22.2% 22.2%
Operating income (458.0) (20.6) (4.8) (703.6) (12.6) 283.6
OI % of sales (20.3%) 12.6%
Diluted EPS* ($1.39) $0.12 ($0.00) $0.02 $2.07 $0.04 $(0.02) $0.85*
*Row does not add due to rounding and/or use of basic vs. diluted shares
© BorgWarner Inc. 3
Agenda
James Verrier – President and Chief Executive Officer
2017 Year in Review
Macro Outlook and Industry Perspective
Recent Product Announcements
2018 Outlook / Emissions Update
Ron Hundzinski – Chief Financial Officer
Q4 2017 Results
2018 Guidance
Tax Update
Q&A
© BorgWarner Inc. 4
Industry Perspective &
Company Update
James Verrier, President & Chief Executive Officer
February 8, 2018
Strong Execution in 2017
Exceeded high-end of 2017 revenue guidance
Significant launches and wins across Combustion-Hybrid-Electric
Finalized purchase of Sevcon
Shared 2020 revenue outlook of $11.5B - $11.8B with continued
margin improvement
© BorgWarner Inc. 6
$2.0 Billion - $2.4 Billion of Backlog thru 2020
50% 45% 5%
50% of Backlog Related to Hybrid and Electric Propulsion
2018-2020 Backlog as of January 17, 2018 Note: Excludes Sevcon
© BorgWarner Inc. 7
Macro Outlook & Industry Perspective
Overall Market Outlook Stable
Technology Trends
2018 / 2019 – Significant Industry Hybrid and
Electric Program Awards Expected
© BorgWarner Inc. 8
Recent Product Announcements
On Axis P2 Module HVH250 electric AWD Coupling
for comprehensive motor and with integrated
development contract with
a Chinese automaker. eGearDrive® ECU and software
transmission for Volvo’s new XC40
for the initial launch of the compact SUV.
FUSO eCanter truck.
© BorgWarner Inc. 9
2018 Outlook
Full-year 2018 Outlook
2018 Organic Growth and Operating Margin Guidance
Maintained
EPS Range Increased To $4.25 - $4.35
First Quarter 2018 Outlook
Maintain Organic Growth Outlook of 3.0% - 5.5%
Multiple Timing Headwinds vs. Full-year Outlook
© BorgWarner Inc. 10Earnings Review &
Financial Outlook
Ron Hundzinski, Executive Vice President & Chief Financial Officer
February 8, 2018BorgWarner Net Sales
Q4 2016 to Q4 2017, $ in millions
Organic Sales Growth of 10.2%
© BorgWarner Inc. 12BorgWarner Operating Income*
Q4 2016 to Q4 2017, $ in millions
16% incremental
margin
12.6% 12.7%
Margin Margin
* Operating income as shown on this slide is non-US GAAP. See reconciliation to US GAAP
© BorgWarner Inc. 13Engine Segment Net Sales & Adjusted EBIT
Q4 2016 to Q4 2017, $ in millions
$73
$117
8.4%* $1,578
$1,387
Q4 2016 net sales Market growth, price and net new FX Q4 2017 net sales
business
$7 $8
6% incremental $266
$251 margin
18.1% 16.9%
Margin Margin
Q4 2016 adjusted EBIT Market growth, price, net new business FX Q4 2017 adjusted EBIT
and performance
* % change to net sales
© BorgWarner Inc. 14Drivetrain Segment Net Sales & Adjusted EBIT
Q4 2016 to Q4 2017, $ in millions
$30 $19
$113
$(23)
$1,004 $1,023
$883 $861 13.1%*
Q4 2016 net sales 2016 Remy 2016 Proforma Market growth, FX Q4 2017 sales pre- Sevcon Q4 2017 net sales
including Remy AM Aftermarket Impact price and net new Sevcon
business
$4
$31
$128 $(4) $124
$94 $94 27% incremental
$0 margin
10.6% 12.1%
Margin Margin
Q4 2016 net sales 2016 Remy 2016 Proforma Market growth, FX Q4 2017 EBIT Sevcon Q4 2017 adjusted
including Remy AM Aftermarket Impact price, net new pre-Sevcon EBIT
business and
performance
* % change to net sales
© BorgWarner Inc. 15U.S. Tax Cuts and Jobs Act Update
$ in millions
Q4 2017 US Tax Charge Detail Total
Transition Tax (Net Toll Tax) $105
Taxes - Foreign Earnings Remittances 94
Deferred Tax Asset Reval 64
Other 11
Total Tax Expense Impact $274
Go forward Effective Tax Rate ~28%
Cash tax rate remains in the low 20% range
© BorgWarner Inc. 162018 Full Year Guidance © BorgWarner Inc. 17
Organic Sales Growth of 5.0% - 7.0% $ in millions © BorgWarner Inc. 18
Operating Margins Modestly Improve
$ in millions
12.6% - 12.7%
12.4% Margin
Margin
© BorgWarner Inc. 192018 Guidance – Other Items
EPS Guidance $4.25 - $4.35
Free Cash Flow $525 - $575 million
CapEx $575 - $625 million
Share Repurchases ~$100 million
R&D Spending ~4% of sales
Tax Rate ~28%
$ / Euro Exchange Rate $1.18 / $170M
© BorgWarner Inc. 202018 First Quarter Guidance © BorgWarner Inc. 21
Q1 2018 Guidance
Sales Guidance Range $2.59B - $2.65B
Organic Growth 3.0% - 5.5%
EPS Range $0.99 - $1.03
Sevcon Impact ($0.02)
Tax Rate ~28%
$ / Euro FX Rate & Impact $1.18 / $100M
© BorgWarner Inc. 22Thank you! © BorgWarner Inc. 23
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