Axalta Coating Systems Ltd. · NYSE:AXTA
Axalta Coating Systems — Investor Presentation (March 2017)
55 slides from Axalta Coating Systems's investor presentation, Mar 2, 2017
Slide 1: Axalta Coating Systems Investor Presentation First Quarter 2017
Axalta Coating Systems Ltd. Investor Presentation First Quarter 2017 Exhibit 99.1
Slide 2: Legal Notices
PROPRIETARYAXALTA COATING SYSTEMS 2 Legal Notices Forward-Looking Statements This presentation and the oral remarks made in connection herewith may contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including those relating to 2017 f
Slide 3: Celebrating 150 Years of Coatings Excellence
PROPRIETARYAXALTA COATING SYSTEMS 2014-2016 November 2014 IPO (NYSE: AXTA) Expand capacity in China, Germany, Mexico and Brazil Build Asia-Pacific Technology Center in Shanghai Acquire Metalak (Netherlands), ChemSpec, Dura Coat & United Paints interior plastics division (U.S.), HIPIC (Malays
Slide 4: Axalta's Corporate Transformation Continues
PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Corporate Transformation Continues • New leadership team • Global re-branding • Completed separation • Developed growth strategy • Renewed customer focus • Aligned incentives No n -Cor e D iv is io n In d e p e n d e n t Co a ti n g s Co m p a n y Carve Out
Slide 5: Axalta – A Global Leader In Coatings
PROPRIETARYAXALTA COATING SYSTEMS Refinish $1.7 B (41%) Industrial $0.7 B (18%) Body Shops Light Vehicle $1.3 B (33%) CV $0.4 B (8%) Performance Coatings General Industrial, Electrical Insulation, Architectural Transportation Coatings Adjusted EBITDA1,2 - $554 M (23% Margin) Adjusted EBITDA1,2 - $35
Slide 6: Axalta's Future State: A Global, High-Performing, Coatings Leader
PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Future State: A Global, High-Performing, Coatings Leader Consistent Growth Margin Expansion Effective Capital Allocation Enhanced Shareholder Returns Axalta’s Vision To maximize our customers’ productivity and product functionality by offering them innovati
Slide 7: Axalta Aims To Grow The Business While Refining The Cost Structure
PROPRIETARYAXALTA COATING SYSTEMS Axalta Aims To Grow The Business While Refining The Cost Structure Growth Supported by Clear Strategies & Enhanced Resources Focus on Emerging Markets for Long Term Opportunity Globalizing Existing Products to Reach Underserved Markets Optimizing Procurement Focus o
Slide 8: Cost Initiatives To Enhance Productivity & Efficiency
PROPRIETARYAXALTA COATING SYSTEMS Cost Initiatives To Enhance Productivity & Efficiency Fit-For-Growth (Europe): $100 million targeted savings • Right-size staffing levels + wage & benefit restructuring • Rationalize manufacturing and logistics • Invest in automation Initial carve-out actions: • Res
Slide 9: Key Goals For 2017
PROPRIETARYAXALTA COATING SYSTEMS Key Goals For 2017 Outgrow our End-markets Stated Objective Expected Results Drive Excellent Customer Service & Innovation Maintain Active Operating Cost Discipline Execute on Structural Savings Disciplined Capital Allocation Continue FCF and Financial Discipline
Slide 10: Axalta Operates Fundamentally Strong Businesses
PROPRIETARYAXALTA COATING SYSTEMS Axalta Operates Fundamentally Strong Businesses A Global Leader in Our Markets Significant Competitive Advantages A Service-Led Business Model Structurally Attractive End Markets Highly Variable Cost Structure; Low Capital Intensity 10
Slide 11: A Global Leader In Our Markets
PROPRIETARYAXALTA COATING SYSTEMS A Global Leader In Our Markets Axalta’s Global Scale Enables Market Leadership _______________________________________________ Information as of FY 2016, all sales data refers to Net Sales 1. Mexico is included in Latin America 2. Includes 12 JV facilities. 46 man
Slide 12: A Global Leader In Our Markets
PROPRIETARYAXALTA COATING SYSTEMS A Global Leader In Our Markets Peer 1 Axalta Peer 2 Peer 3 Other ~90% of Sales from Markets Where Axalta Has #1 or #2 Global Share Axalta Peer 1 Peer 2 Peer 3 Other Performance Coatings: Refinish Transportation Coatings: Light Vehicle #1 ____________________________
Slide 13: Significant Competitive Advantages
PROPRIETARYAXALTA COATING SYSTEMS Significant Competitive Advantages Differentiated Franchise with Global Scale and Strong Competitive Advantages 4+ million color variations Hundreds of formulations in automotive & industrial Deep coatings heritage since 1866 Broad global brand portfolio 1
Slide 14: Industry Trends
PROPRIETARYAXALTA COATING SYSTEMS Industry Trends Axalta Technologies OEM Vehicle Light-Weighting Broad substrate coating applicability for next generation materials Growth in Multi-Shop Operators (“MSO”) Axalta’s waterborne technology improves MSO shop productivity and our national coverage ena
Slide 15: Axalta Employs A Service-Led Business Model
PROPRIETARYAXALTA COATING SYSTEMS Axalta Employs A Service-Led Business Model Critical Functionality at a Relatively Low Cost 1 Compelling Value Proposition Where Product Cost is Not the Main Driver Light & Commercial Vehicle: <1% of a new vehicle’s cost Industrial: Critical to function, durability,
Slide 16: Structurally Attractive Global End-Markets
PROPRIETARYAXALTA COATING SYSTEMS Structurally Attractive Global End-Markets Strong Coatings Growth Outlook Long Term Alignment With Global Growth Refinish: Car parc, miles driven and collision rates Light Vehicle: Emerging economies and middle classes; ongoing consumer strength in developed mar
Slide 17: Highly Variable Cost Structure And Low Capital Intensity
PROPRIETARYAXALTA COATING SYSTEMS Highly Variable Cost Structure And Low Capital Intensity ~50% of COGS come from variable raw material inputs Utilize temporary labor to enable wage structure flexibility Toggle other costs as needed in a downturn, including both variable and semi-fixed Low Cap
Slide 18: Axalta's Evolution Is Grounded In Fundamental Goals
PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Evolution Is Grounded In Fundamental Goals Focus on operational excellence and foster a culture of accountability Axalta’s Strategy Grow in targeted industrial coatings segments via organic growth and selective acquisitions Move into attractive adjacencies
Slide 19: Strategy: Grow Core Products & Markets
PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Strategy: Grow Core Products & Markets Refinish ____________________ Source: Axalta estimates Strong Momentum Driven by Customer-Centric Approach Axalta MSO Market Share 2013 Today Light Vehicle Axalta is gaining share by partnering with market winners
Slide 20: Strategy: Accelerate Growth In Emerging Markets
PROPRIETARYAXALTA COATING SYSTEMS Emerging Markets, 29% Axalta’s Strategy: Accelerate Growth In Emerging Markets China Example Light Vehicles, Per 1,000 People China Car Parc (thousands) 743 263 230 129 61 19 United States Central & Eastern Europe Mexico Brazil China India Damaged Vehicles Per 1M km
Slide 21: Strategy: Targeted Industrial Coatings Expansion
PROPRIETARYAXALTA COATING SYSTEMS Architectural Axalta’s Strategy: Targeted Industrial Coatings Expansion Growth from Leveraging Our Product Portfolio in Underserved Markets Strong product portfolio in powder, liquid, and e-coat Implemented global end-market business structure to capitalize on o
Slide 22: Strategy: Focus On Operating Excellence
PROPRIETARYAXALTA COATING SYSTEMS Balanced manufacturing footprint and capacity Ongoing productivity investments Salesforce reorganization R&D / Technology enablers Enhanced IT tools Procurement roadmap Process improvement Leadership and Culture The tone is set; focus on growth and p
Slide 23: Financial Overview
Financial Overview
Slide 24: Focused On Connecting Performance To Shareholder Returns
PROPRIETARYAXALTA COATING SYSTEMS Axalta Is Focused On Connecting Performance To Shareholder Returns Underlying Market Growth Axalta Growth Initiatives Operational Improvements M&A Structural demand growth Industry trends favor global suppliers Momentum driven by customer-centric approach Long
Slide 25: FY Consolidated Results
PROPRIETARYAXALTA COATING SYSTEMS FY Consolidated Results 25 Financial Performance Commentary Net Sales Variance Solid net sales growth excluding currency Strong net sales growth in Industrial driven by North America, EMEA, and Asia Pacific; Refinish benefited from improved pricing Solid volume
Slide 26: The Axalta Way: Driving Towards World Class Productivity
PROPRIETARYAXALTA COATING SYSTEMS Cumulative Productivity Savings ($ millions) The Axalta Way: “A focused approach to doing business that drives profitability by improving our efficiency, productivity and growth opportunities every day, wherever we do business” 2017E20162015 2018E2014 ~$150 $89 ~$20
Slide 27: Prioritization Of Capital Spending; Focus On High IRR Capex
PROPRIETARYAXALTA COATING SYSTEMS Major CapEx projects completed in 2016 Asia Pacific Technology Center Argentina – New Manufacturing Site Major CapEx projects planned for 2017 Global Innovation Center China – New Manufacturing Site Jiading – WB Expansion Savli – OEM Manufacturing &
Slide 28: Effective Capital Allocation Should Drive Improved Returns
PROPRIETARYAXALTA COATING SYSTEMS Notes: 1) ROIC = Net Operating Profit After Tax (NOPAT) / (Total Debt + Preferred Stock + Minority Interest + Equity); 2) AXTA total capital excludes identified intangible assets; 3) Data as of LTM Q4 2016 Axalta’s ROIC is penalized by the February 2013 LBO and re
Slide 29: Capital Allocation: Decision Tree For Excess Cash Flow
PROPRIETARYAXALTA COATING SYSTEMS Debt Reduction Organic Investment Capex / R&D M & A Dividends Share Repurchases - Offset dilution - Opportunistic buys Leverage in excess of target and no immediate investment? Investment opportunity that exceeds hurdle rate? Share price greater than fair value? EBI
Slide 30: Debt and Liquidity Summary
PROPRIETARYAXALTA COATING SYSTEMS Capitalization Net Leverage (1) Assumes exchange rate of $1.04 USD/Euro (2) Total Net Debt = Total Debt minus Cash and Cash Equivalents (3) Indebtedness per balance sheet less cash & cash equivalents divided by FY 2016 Adjusted EBITDA 4.0x 3.7x 3.7x 3.4x 3.5x 3.3x 3
Slide 31: Acquisitions Company Overview
AXALTA COATING SYSTEMS Target GeographyEnd-Market Company Overview Leading local producer of refinish coatings in Malaysia and Indonesia Leading North America supplier of automotive interior coatings; strong position in North American OEM’s Leading independent supplier of coil coatings in North Amer
Slide 32: 2017 Guidance
PROPRIETARYAXALTA COATING SYSTEMS Net sales growth includes incremental M&A contribution of 2-3% from completed transactions Margin expansion driven by volume, price, and ongoing cost reduction initiatives Headwinds to margins from moderate input cost inflation, modest sales mix changes, and f
Slide 33: Performance Coatings: Refinish
Performance Coatings: Refinish
Slide 34: Global Refinish Dynamics
PROPRIETARYAXALTA COATING SYSTEMS Projected Industry Sales ($ in billions) Asia Pacific EMEA North America 4.7% 3.4% 1.5% 2.3% ’16E – ‘20E CAGR ___________________________________ Source: Orr & Boss (2016); Axalta estimates Latin America 2.7% Axalta Global Refinish Dynamics Strong heritage through
Slide 35: Axalta Has A Very Strong Position In Refinish Globally
PROPRIETARYAXALTA COATING SYSTEMS Global Share Position Key Market Trends Refinish Industry Sales: ~$7.7 billion Drivers include size of car parc, miles driven, and accident rates Industry dynamics favor stable competition in most markets Focus on innovation and service to increase body shop p
Slide 36: Refinish Products: The Paint Layers & Process
PROPRIETARYAXALTA COATING SYSTEMS Refinish Products: The Paint Layers & Process Clearcoat: Protects basecoat from the elements, gives automobile its lustrous look Basecoat: Creates automobile’s color and aesthetics Primer Surfacer: Protects automobile from visible and UV light, Improves surface smoo
Slide 37: Performance Coatings: Industrial Coatings
Performance Coatings: Industrial Coatings
Slide 38: The Overall Industrial Coatings Market is Expected to Grow
PROPRIETARYAXALTA COATING SYSTEMS ’16E-‘20E CAGR($ in billions) Asia Pacific EMEA North America 6.7% 5.2% 3.2% 3.2% 5.4% _____________________________ Source: Orr & Boss (2016); Axalta estimates Latin America The Overall Industrial Coatings Market is Expected to Grow 38 The Industrial Coatings Marke
Slide 39: Industrial Coatings Segments and Market Drivers
PROPRIETARYAXALTA COATING SYSTEMS General Industrial $15.0 Electrical Insulation $2.0 Architectual $1.5 ACE $1.5 Coil $4.5 Oil & Gas $3.5 Product Examples Market Drivers General Industrial Metal furniture Appliances Shelving/ racking Electrical boxes GDP Industrial Production Electrical
Slide 40: Industrial Coatings Drivers
PROPRIETARYAXALTA COATING SYSTEMS General Industrial 50% Architectural 19% Electrical Insulation 12% ACE 8% Coil 7% Oil & Gas 4% Net Sales by Segment Industrial Coatings Drivers Volume growth driven by global GDP and Industrial Production China drives >40% of global industrial coatings consumption
Slide 41: Growth Priorities & Strategies
PROPRIETARYAXALTA COATING SYSTEMS Growth Priorities & Strategies Agricultural, Construction & Earthmoving Equipment (ACE) Expand approval portfolio with multiple coatings technologies Utilize global footprint to target new business in all regions Architectural Market our powder coatings to arc
Slide 42: Transportation Coatings Overview
Transportation Coatings Overview
Slide 43: Transportation Coatings Segment Overview
PROPRIETARYAXALTA COATING SYSTEMS Global co-lead supplier to OEMs Transportation Light Vehicle Original Equipment Manufacturers Plastics and composite materials Metal coatings #1 global supplier to heavy duty truck and bus segments Commercial Vehicle Commercial trucks Rail Bus Utility
Slide 44: Axalta is actively transforming its business for profitable growth
PROPRIETARYAXALTA COATING SYSTEMS 17% global light vehicle market share with strong OEM relationships in all regions #1 player globally in heavy duty truck and bus Extensive portfolio of technologies fit for purpose in each market Showing results to date through business wins and global la
Slide 45: Structurally Growing Markets
PROPRIETARYAXALTA COATING SYSTEMS Market Growth: Light Vehicle Market Growth: Commercial Vehicle _____________________________ Source: Orr & Boss (2016); Axalta estimates Asia Pacific Latin America EMEA North America 3.9% 3.1% 2.3% 1.5% 2.7% ($ in billions) ’16E – ‘20E CAGR ($ in millions) Asia Paci
Slide 46: Key Market Trends
PROPRIETARYAXALTA COATING SYSTEMS Volatile organic compounds (VOCs) Toxic substances Coatings for new lightweight materials to improve fuel economy Government Regulations Emerging Markets Industry Globalization Demand for Productivity Color and Protection Near-term uncertainty (Brazil, Russi
Slide 47: Transforming A Global Coatings Supplier
PROPRIETARYAXALTA COATING SYSTEMS Global Share Axalta 31% Axalta is a global leader in transportation coatings Globalizing and harmonizing our coatings technology Bringing brighter colors and more effects to color design Aligning global R&D and product management around voice-of-customer W
Slide 48: Vision Is Above-Market Growth
PROPRIETARYAXALTA COATING SYSTEMS Gain share with existing customers Grow underserved customers and regions Align product technology to evolving customer and market needs Increase content per vehicle Leverage “what good looks like” into new regions, customers and markets Strategies Key Tac
Slide 49: Segmenting Our Markets
PROPRIETARYAXALTA COATING SYSTEMS Light Vehicle HDT Specialty OEM Bus Rail General Aviation Body Builders & Trailers Estimated Market Size $7,800M $600M $550M $200M $600M $45M $400M Product Examples Passenger cars Pick Ups / SUVs Light commercial vehicles Component parts EM class 4-8 truck man
Slide 50: Transportation Segment Growth Strategies
PROPRIETARYAXALTA COATING SYSTEMS China expansion to mainstream and economy segments Leverage high speed rail success SprayFlex FSTM interior floor coatings Leverage global accounts Gain share in tier part suppliers China growth via Kinlita JV China HDT volume is three times NA Lever
Slide 51: The OEM Paint Process
PROPRIETARYAXALTA COATING SYSTEMS Light Vehicle Coating totes delivered to OEM E-Coat applied after pre-treat Primer, Basecoat & Clearcoat applied Quality inspections between layers 51 The OEM Paint Process
Slide 52: Appendix
APPENDIX
Slide 53: Adjusted EBITDA Reconciliation
PROPRIETARYAXALTA COATING SYSTEMS Note: Numbers might not foot due to rounding. ($ in millions) FY 2016 FY 2015 Q4 2016 Q4 2015 Net Income (Loss) $48 $98 (34) $39 Interest Expense 178 197 37 47 Provision for Income Taxes 40 63 16 15 Depreciation & Amortization 322 308 86 82 Reported EBITDA $588 $665
Slide 54: Adjusted EBITDA Reconciliation Notes
PROPRIETARYAXALTA COATING SYSTEMS A. During the three months and years ended December 31, 2016 and 2015 we prepaid principal on our term loans, resulting in non-cash extinguishment losses of $3 million, $10 million, $3 million and $3 million, respectively. During the three months and year ended Dece
Slide 55: Thank you!
Thank you! Investor Contact: Chris Mecray, VP IR [email protected] 215-255-7970
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