Drive international growth and leverage innovation leadership Bankhaus Lampe - Small Cap Conference - Dusseldorf, 7 September 2017 - SHW AG
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Drive international growth and leverage innovation leadership
Bankhaus Lampe – Small Cap Conference
Dusseldorf, 7 September 2017
Table of Contents
Drive international growth and leverage innovation leadership
I Strategic Roadmap
II Our strategic priorities
III Market environment
IV Financial goals
1
SHW production network
Bad Schussenried
Germany
Hermsdorf Timişoara
Germany Romania
(SOP 2017)
Aalen-Wasseralfingen
Toronto Germany
Canada
(SOP 2018)
LongKou
China
Kunshan
Tuttlingen-Ludwigstal China
Germany (SOP 2016)
Neuhausen ob Eck
Germany
Sao Paulo
Brazil
(SOP 2014)
Pumps &
Engine Brake Discs
Components
SHW is present in all strategic markets
2
Strategic roadmap
Phase I: Consolidation Phase II: Capital-efficient growth
Market penetration
Innovations
Operational excellence
2016 2017 2018 2019 2020
SHW on track for capital efficient growth
3
Our strategic priorities – Enhance market penetration
Pumps & Engine Components
2015 2016 2017 2018 2019 2020
China Preparation of operating business activities
SOP for North American OEM
2 SOPs for Chinese OEM
2 SOPs for North American/Chinese JV
SOP for European OEM
NAFTA Re-entry into the market
SOP for North American OEM
SOP for North American OEM
Brazil First series contract (SOP 2014)
SOP for North American OEM in Europe
SOP for North American OEM
Europe
SOP for North American OEM in Europe
Engine Transmission
Enhanced international presence as a catalyst for future growth
4
Our strategic priorities – Leverage innovation leadership
SHW’s prototypes delivered to OEMs and Tier 1 suppliers
Optimised two stroke vane pump:
Weight reduction
Two stroke Efficiency increase up to 85 per cent
vane pump CO2 emission reduction of up to 2g per km (NEDC)
Electrical double stage oil pump combines two pumps in one solution
Offers two pressure stages:
Scalable electric High pressure stage enabling gear and clutch actuation
power pack Low pressure stage serving as coolant and lube oil pump
transmission oil Improvements in efficiency and weight reduction
pump
SHW portfolio includes primary transmission oil pumps for vehicles powered by
combustion engines (incl. hybrids)
5Our strategic priorities – Leverage innovation leadership
M&A
Electronic control units Acquisition of know-how in the area of electronic control unit technology
Reinforcement of Tier 1 position
Transmission applications becoming increasingly important also in electric
cars
Electrically driven
transmission oil Product solution serves as primary transmission pump for cooling and
pumps for all lubricating the electric powertrain
powertrain concepts
Controlled electric pump solution for needs-oriented oil supply
Ongoing dialogue with several manufacturers of e-axles and automatic /
hybrid transmissions
Electric vehicles require high performance brake discs
Composite brake disc Product solution is a composite brake disc
for high performance with best comfort characteristics
electric cars
and high braking performance
Platform strategy allows production synergies for these high end cast discs
SHW portfolio includes primary transmission oil pumps and composite brake discs
for battery electric vehicles
6Our strategic priorities – Leverage innovation leadership
Technology Expertise by Lust Hybrid Technik GmbH
Thick film
CAD design
Since 1992 - 90 employees - Sales: € 10 million screen printing technology
laser trimming of printed
resistors
Services:
Chip on Board
development, industrialization, production and screen printing / dispense bare
qualification of complex, miniaturized electronics die attach
Au / Al wire bonding
and micro-systems technology heavy wire bonding & glob top
SMT
down to 0201, CSP, BGA -
Automotive components
Insourcing of production, THT
logistics and quality processes ceramics, PCB and flex-rigid
printed board
Process- und Final
Industry Medical & other
Development and Product design
inspection
production of small and according to customer electrical test
high volume series requirements traceability
SPC- & ERP recording
Acquisition optimises the degree of vertical integration in the electric pumps
business
7Our strategic priorities – Leverage innovation leadership
Standard SHW Patent High end casted
wave disc
Weight reduction Weight reduction
Casted ventilated
about 2 kg / disc > 2 kg / disc
disc
Weight reduction, improved comfort + performance
> SHW is innovation leader for lightweight brake disc in the automotive sector
> Composite brake discs with aluminium pot significantly contribute to weight reduction
> Reduction of unsprung masses improves driving performance
The megatrends weight reduction, corrosion resistance and reduction of brake dust
are key drivers for the Brake Discs division
8Our market environment – increasing demand for mobility solutions
Light vehicle production by region (m units)
China Europe Global light vehicle production
+1.0%
expected to increase on
+2.5% average by 1.9 per cent to 110
33.7 22.7 23.5
30.2 21.5 m units until 2025
27.1
China: main growth driver
Europe: slight growth mainly
driven by recovery in Russia
2016 2020 2025 2016 2020 2025
North America: stable on
current level
South America North America
+0.5% South America: steady recovery
after severe market slump
+4.9% 4.2 18.7 18.7
17.8
3.3
2.7
2016 2020 2025 2016 2020 2025
SHW present in all strategic markets to benefit from increasing production volumes
Source: IHS - January 2017
9Our market environment – automatic transmissions gain market shares
Transmission production by region (m units)
China Europe China: automatic transmissions
+1.2% will grow above average by 7.3
+3.3%
30.6 23.6
24.9 per cent annually
22.3
26.6
22.9
8.5 9.3 10.4 Europe: automatic
17.3
9.2 14.4 transmissions will gain market
shares step by step
13.7 13.8 13.4
13.4 11.6 12.1
South America: manual
0.3 0.6 1.2 0.1 0.6 1.1
transmissions will remain the
2016 2020 2025 2016 2020 2025 dominant transmission type
South America North America Majority of automatic
+1.0% transmissions require
2.7 16.3
+3.4% 0.1 16.0 transmission oil pumps (primary
and secondary)
2.3
0.1 15.6
14.9 15.4 Limited number of competitors
2.0 2.6
2.2
1.9 0.1
14.7 0.1
0.5 0.7
0.2
0.0 0.0 0.0 0.1
2016 2020 2025 2016 2020 2025
Automatic Manual Other
Transmission oil pumps strategic growth segment for SHW
Source: IHS - January 2017
10Our market environment – combustion engines dominate until 2025
Engine production by region (m units)
China Europe China: gasoline engines will
+0.7%
remain dominant engine type
34.2 24.3 24.8
+2.7% 23.2
2.4 Europe: gasoline engines will
30.5
10.1
gain market shares
2.1 10.9
27.0 11.2
1.8 27.7
30.4 North America: gasoline
13.0 13.8 engines will remain by far the
24.9 dominant engine type
0.7 1.4 11.9 0.5 0.9
2016 2020 2025 2016 2020 2025
Increasing hybridisation results
in a growing number of pumps
South America North America per car
+1.2%
+5.5% 3.4 17.3 17.9
16.1 0.7 0.6
0.5
2.5
2.1
3.2 16.0 16.5
15.4
2.0 2.3
2016 2020 2025 2016 2020 2025
Diesel (incl. hybrids) Gasoline (incl. hybrids) Electricity Other
Source: IHS – January 2017
11Financial goals – Sales and EBITDA
Phase I: Consolidation Phase II: Capital-efficient growth
SHW International SHW Europe
620 – 650 650 *
560 – 590 600
550
Sales 470 – 495
463 500
(€m) 406 400 – 420 450
300
12.0% – 13.0%
11.5% – 12.5%
11.0% – 12.0%
EBITDA
10.0% – 11.0%
10.7%
(%)
9.4%
2015 2016 2017 2018 2019 2020
*Only for illustrative purposes
12Financial goals – Investments and depreciation
Phase I: Consolidation Phase II: Capital-efficient growth
33 – 36
29 – 32 29 – 32
27 – 30
Investments 24 25
(€m)
Depreciation 28 – 30 29 – 31
24 – 26 25 – 27
22 25
(€m)
2015 2016 2017 2018 2019 2020
13Financial goals – Miscellaneous
Capital Sustainable and strong capital structure with a balance sheet equity
structure ratio of at least 30 per cent to 40 per cent
Leverage potential to increase net debt / adj. EBITDA ratio to a
Debt ratio
maximum of 2.5
High flexibility in terms of financial and strategic headroom: syndicated
Liquidity
loan facilities plus additional baskets
Results-oriented dividend policy with a pay-out ratio of 30 per cent to 40
Dividend
per cent of the net income for the year taking into account the financing
policy
requirements of SHW
14Your key takeaways
Pumps & Engine Components business segment well on track
Brake Discs business segment temporarily below target level
We reaffirm our full year guidance of Group sales of € 400m to € 420m and an
EBITDA-margin of 10 per cent to 11 per cent
Sound balance sheet safeguards strategic flexibility
15Financial Calendar 2017
Dates Events
03.05.2017 Financial Report – January to March 2017
09.05.2017 Annual General Meeting (Congress Centre Heidenheim)
28.07.2017 Financial Report – January to June 2017
30.08.2017 Commerzbank – Sector Conference, Frankfurt
07.09.2017 Bankhaus Lampe – Small Cap Conference, Dusseldorf
13.09.2017 Deutsche Bank – IAA Cars 2017 Conference, Frankfurt am Main
19.09.2017 Berenberg and Goldman Sachs – German Corporate Conference, Munich
26.10.2017 Financial Report – January to September 2017
15.01.2018 Kepler Cheuvreux – German Corporate Conference, Frankfurt am Main
30.04.2018 Bankhaus Lampe – German Corporate Conference, Baden-Baden
16Contact Investor Relations
Michael Schickling
Head of Investor Relations & Corporate Communications
Telephone: +49 (0) 7361 502-462
E-Mail: michael.schickling@shw.de
Sandra Scherer
Junior Manager Investor Relations & Corporate Communications
Telephone: +49 (0) 7361 502-469
E-Mail: sandra.scherer@shw.de
17Backup
18Stable market environment in H1 2017
Light Vehicle Production SHW Group Sales (€m)
(< 6 t) (m units)
12.5 12.8 215.3
202.7 Light vehicle production: + 2.6
11.4 11.6
per cent to 47.2 million units
9.1 9.0
with marked growth rate
differences
Gasoline engines gain further
H1 2016
1.3 1.5 market share; diesel engines
H1 2017
stable
China Europe North South
America America
Above-average growth rates for
automatic transmissions –
Global Engine Production Global Transmission Production global production increased by
(m units) (m units) 6.7 per cent to 27.7 million units
35.9 37.1 26.0
27.7
19.8 19.1
9.8 9.8
Gasoline Diesel Automatic Manual
Source: IHS, July 2017
SHW well positioned to benefit from structural market changes and strong
demand for mobility solutions
19Financial figures H1 2017
H1 H1
€m1 Change
2017 2016
Sales development as budgeted
Group sales 202.7 215.3 -5.8%
EBITDA 19.8 21.8 -9.1% EBITDA margin temporarily
as % of sales 9.8% 10.1% -
impacted by brake disc
business unit and non-recurring
Depreciation 11.5 12.2 -5.7% administrative costs
EBIT 8.3 9.6 -13.4%
Slightly lower depreciation due
as % of sales 4.1% 4.4% -
to below average asset
ROCE 11.7% 12.5% - additions in 2015 und 2016
Net income for the period 5.4 6.5 -17.7%
High investments in new
EPS (in €) 0.8 1.0 -17.7% markets
Investments2 14.7 9.9 49.0%
Positive operating free cash
as % of sales 7.3% 4.6% -
flow
Working capital ratio 12.9% 12.3% -
Operating free cash flow 3.9 -9.9 -
Sound financial profile
Equity ratio 49.9% 50.7% -
Net debt / net cash -7.9 -4.2 -
1 Figures include rounding adjustments
2 Additions to tangible and intangible assets
Financial results within the target range
20Group
2016
Sales (€m) Sales by quarter (€m) 2017
-5.8% Group sales influenced by:
108.7
215.3 202.7 106.6 104.3
98.4 97.0 93.6
the transition to the second
generation of an electrically
driven transmission oil pump
for the start-stop function
(Pumps and Engine
Components)
H1 2016 H1 2017 Q1 Q2 Q3 Q4
higher unit sales
(Brake Discs)
EBITDA (€m) EBITDA by quarter (€m)
-9.1% EBITDA below the previous
year’s level mainly triggered
21.8 10.8 10.1 11.0 10.7 11.1
19.8 9.6 by:
a lower earnings contribution
of the Brake Discs business
10.1% 9.7% 10.1% 9.8% 11.1% 11.8%
segment
non-recurring administrative
costs
H1 2016 H1 2017 Q1 Q2 Q3 Q4
21Customer sales
VW 56.5
59.1
Decline in sales mainly relates to
33.1
Daimler
21.4 the transition to the second
generation of an electrically
BMW 20.3
19.6 driven transmission oil pump for
14.8 the start-stop function
Volvo Cars 17.4
18.5
Dependency on the VW group
Audi 15.3 expected to decrease by
Thyssen 9.9 internationalisation and
Krupp 9.0 diversification towards
6.8 transmission oil pumps from
Ford 8.6 2018 onwards
Porsche 9.1
7.3
Hilite 5.2
5.5
Brembo 4.3
4.4
Other 38.3 H1 2016
33.2
H1 2017
International growth and diversified product range will lead to a
more balanced customer structure
22Business Segment: Pumps and Engine Components
2016
2017
Sales by quarter (€m) Sales decline as budgeted by
Sales (€m)
8.9 per cent to € 155.4 million
-8.9%
Passenger Cars: -13 per cent
170.6 85.9 80.6 84.7 to € 123.1 million
155.4 74.7 74.8 72.1
Industry: +14 per cent to
€ 16.6 million
H1 2016 H1 2017 Q1 Q2 Q3 Q4 Powder Metallurgy: +10 per
cent € 15.6 million
EBITDA (€m) EBITDA by quarter (€m)
EBITDA margin improved to
10.3
-4.7% 9.5 9.4 9.2 11.5 per cent due to positive
8.5 8.4
18.8 volume and product mix effects
17.9
and productivity improvements
11.1% 11.7% 10.9% 11.3% 11.2% 14.3%
Earnings development of
foreign subsidiaries overall
according to plan
H1 2016 H1 2017 Q1 Q2 Q3 Q4
23Business Segment: Brake Discs
2016
2017
Sales (€m) Sales by quarter (€m)
6.0%
Total number of brake discs sold:
+ 8.4 per cent
44.7 47.3 23.7 24.0 23.7 22.1
20.7 21.5
Positive volume and product mix
effects as well as productivity
improvements contrasted with
higher purchase costs for coke
H1 2016 H1 2017 Q1 Q2 Q3 Q4 and the contractual delay in
adjusting material surcharges
EBITDA (€m) EBITDA by quarter (€m)
2.8
-16.9%
2.2
3.8 1.8
3.1 1.6
1.3 1.3
7.7% 5.5% 9.0% 7.7% 12.7% 6.1%
H1 2016 H1 2017 Q1 Q2 Q3 Q4
Temporary negative effects on EBITDA noticeably diminished in Q2
24Net working capital ratio
Development of net working capital ratio
14.1%
Net working capital reduced to
€ 50.6 million
13.1% 12.9%
12.3% 12.2%
11.7% 12.0% Higher inventories due to:
10.4% 10.6% 11.0%
a variety of projects in
progress (unfinished
products)
7.0%
Lower trade receivables mainly
due to:
lower sales (adjusted figure:
-11.3 per cent)
Higher trade payables due to:
comparatively higher asset
Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/ 17 Q2/17
additions
Medium-term target 11 per cent to 12 per cent
Net working capital ratio target in a range of 11 per cent to 12 per cent
25Investments and depreciation
2016
Investments (€m) Investments by quarter (€m) 2017
+49.0% Investments in property, plant and
equipment and intangible assets
14.7 9.0
8.0 at a total of € 14.7 million
6.8
9.9 5.7
5.0 4.9 Pumps & Engine Components:
4.7% 8.4% 4.5% 5.8% 7.0% 8.6% mainly for new assembly lines in
Germany and China (total: €
11.6m)
H1 2016 H1 2017 Q1 Q2 Q3 Q4
Brake Discs: mainly for second
automated aluminium casting line
Depreciation (€m) Depreciation by quarter (€m)
and machining lines (total: €
-5.7% 2.7m)
5.9 5.7 6.2 6.1 6.3
12.2 5.8
11.5 Slightly lower depreciation due to
below average asset additions in
5.6% 5.4% 5.8% 5.9% 6.3% 6.7%
2015 und 2016
H1 2016 H1 2017 Q1 Q2 Q3 Q4
High level of investments in new markets
26Cash Flow
Q2 Q2 H1 H1
€m1
2017 2016 2017 2016
Operating cash flow significantly
improved mainly due to a
Cash flow from operating activities 7.9 1.4 18.5 -0.3 significant lower increase in
working capital
Cash flow from investing activities
Total free cash flow influenced
-5.7 -4.7 -14.5 -9.7 by payment of second purchase
- tangible and intangible assets
price instalment for joint venture
SHW Longji Brake Discs
Operating free cash flow 2.1 -3.3 3.9 -10.0
Cash flow from investing activities
0.0 0.0 -6.8 0.0
- financial assets
Total free cash flow 2.1 -3.3 -2.9 -10.0
Other (esp. dividend payment) -6.7 -6.5 -6.7 -6.6
Change in net cash -4.5 -9.8 -9.6 -16.5
1 Figures include rounding adjustments
Strong focus on operating free cash flow
27Sound financial profile
Assets Liabilities
237.8
237.8 229.5
229.5
Non-current assets increased
due to investments in tangible
118.7
116.3 assets
133.0 139.2
Current assets nearly
unchanged
26.1 28.0 Equity ratio at 49.9 per cent due
8.8 8.0 to above average increase of
4.8 10.6
balance sheet total
95.2 95.9
73.5
Net debt still significantly
72.5
below industry average
1.2 2.7
30.06.2016 30.06.2017 30.06.2016 30.06.17
Equity Bank debt
Non-current assets Cash
Pensions Other short-term liabilities
Current assets
Other long-term liabilities
Sound balance sheet safeguards strategic flexibility
28Disclaimer
No offer or investment recommendation
This document, which has been issued by SHW AG (the “Company” or “SHW”), does not constitute an offer to sell, or the solicitation of an offer to subscribe for or
buy, any shares in the Company, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or
investment decision in relation thereto.
The contents of this presentation are may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part,
for any purpose. Neither the Company nor any other party is under any duty to update or inform you of any changes to such information. In particular, it should be
noted that financial information relating to the Company contained in this document has not been audited and in some cases is based on management information
and estimates.
This material is given in conjunction with an oral presentation and should not be taken out of context.
Certain market data and financial and other figures (including percentages) in this document were rounded in accordance with commercial principles. Figures
rounded may not in all cases add up to the stated totals or the statements made in the underlying sources. For the calculation of percentages used in the text, the
actual figures, rather than the commercially rounded figures, were used. Accordingly, in some cases, the percentages provided in the text may deviate from
percentages based on rounded figures.
Future Oriented Statements
Certain statements in this presentation are forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties and
assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward‐looking statements. These risks,
uncertainties and assumptions could adversely affect the outcome and financial consequences of the plans and events described herein.
No obligation to update the information
The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise, except as otherwise required by applicable laws and regulations. You should not place undue reliance on forward-looking statements, which speak as
only of the date of this presentation. Statements contained in this presentation regarding past trends or events should not be taken as a representation that such
trends or events will continue in the future.
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