Borgwarner Inc. · NYSE:BWA
Borgwarner — Investor Presentation (November 2006)
42 slides from Borgwarner's investor presentation, November 2006
Slide 1: Investor Presentation
Investor Presentation Our Beliefs: Respect - Collaboration - Excellence - Integrity - Community Responsibility 1
Slide 2: Company Overview
Company Overview Focused on Powertrain Systems Engine •2005 Sales $4.3 Billion •Employees 16,700 •Operations 63 Locations 18 Countries •Growth Fuel Economy Drivers Performance Air Quality Vehicle Stability Drivetrain 2
Slide 3: Company Profile: Engine Group
Company Profile Engine Group Emission Controls Cars Secondary Air Systems Trucks (Light, Medium, Heavy Duty) Actuators Off Highway Emission Systems Turbochargers Thermal Management Components and Systems Engine Timing Chain Visctronic® Systems Variable Cam Timing Fans / Fan Drives Gemini™ Chain Syst
Slide 4: Company Profile: Drivetrain Group
Company Profile Drivetrain Group DualTronic® Clutch Module One-way Clutches Transmission Bands Solenoids / Control Modules Friction Plates Transmission Systems 4WD Transfer Cases Synchronizer Rings AWD Systems Electronic Control Units TorqTransfer Systems 4
Slide 5: Key Technology Benefits
Key Technology Benefits* Fuel Vehicle Efficiency Performance Emissions Stability Engine Group Electronic Controls +++ +++ +++ +++ Turbochargers +++ +++ ++ Variable Cam Timing +++ +++ +++ Smart Thermal Systems +++ + + Beru Ignition Technology ++ ++ +++ Exhaust Gas Recirculation ++ +++ Timing Chain Sy
Slide 6: Engine
Engine 6
Slide 7: Engine Group
Engine Group Market Trends/Growth Drivers • Better fuel economy • Tightening emissions standards • Vehicle performance Key Products • Turbochargers • Variable Cam Timing • Thermal Management Components and Systems • Diesel Cold Start Technology • Emission Control Components • Engine Timing System 7
Slide 8: Turbochargers
Turbochargers • Enables smaller engines to replace larger ones – Increased power per unit of displacement • Improves fuel economy • Improves performance • Reduces emissions 100 • Expect diesel engine growth in every market 90 • Performance of direct-injected diesels has led to active development of
Slide 9: Variable Cam Timing
Variable Cam Timing • Optimizes engine timing at various speeds • Cam Torque Actuation: next generation technology – Reduces parasitic losses seen in oil pressure actuated systems – Superior performance at low speeds and low temperatures – Better fuel economy Variable Cam Timing - Global Market % of
Slide 10: Thermal Management Systems
Thermal Management Systems • Visctronic® thermal management technology improves engine cooling with electronic controls – On-demand airflow Improves fuel economy Reduces fan noise • Applications in light, medium, heavy-duty and off- highway vehicles Electronically-Managed Cooling % of Market* Gl
Slide 11: Diesel Cold Start Technology
Diesel Cold Start Technology • Glow plugs facilitate efficient combustion during a diesel cold start Particulate Matter Emissions Regulations – Reduces emissions (g/mile) • Beru’s Instant Starting Systems add electronic 0.10 controls for optimal performance 0.08 As e ia 0.06 urop E Japan– 2002 Large
Slide 12: Exhaust Gas Re-circulation Valves
Exhaust Gas Re-circulation Valves • Re-circulates exhaust gas to “cool” lean combustion NOx Emissions – Reduces NOx emissions Regulations (g/mile) • Important technology for lean-burning direct- 1.0 injected diesel and gasoline engines pe 0.8 As r o ia 0.6 Eu 0.4 EURO 3 PC - 2000 Japan– 2002 Large C
Slide 13: Engine Timing Systems
Engine Timing Systems • Superior wear characteristics of timing chains versus timing belts – Improves the precision of engine timing – Improves fuel economy • Widely adopted in North America; Europe and Asia are now following the trend Overhead Cam Engines - Chain Timing Systems - North America Japa
Slide 14: Drivetrain
Drivetrain 14
Slide 15: Drivetrain Group
Drivetrain Group Market Trends/Growth Drivers • Better fuel economy • Increased demand for automatic transmissions in traditionally manual transmission markets • Progression from 4 & 5-speed to 6, 7 & 8-speed transmissions • The advent of interactive vehicle handling and stability systems Key Produc
Slide 16: Transmission Systems
Transmission Systems Transmission • Leader in “shift quality” friction material technology Control Module • Leader in electronic controls that have enabled higher speed transmissions – Improves fuel economy – Increased friction materials required in these more complex transmissions Friction Products
Slide 17: DualTronic
DualTronic® • Converts a manual gearbox to an automatic transmission – Lower emissions – Better fuel economy • Well received in Europe – Demand for automatics is strengthening, but – Infrastructure is largely manual • Provides framework for an affordable automatic transmission in emerging markets AM
Slide 18: Torque Management
Torque Management Interactive Torque Transfer Case • Active systems are expected to be the key Management growth driver within the segment – Electronically-controlled – Interact with braking and steering systems – Improved vehicle handling and stability • Competing mechanically-controlled, or passiv
Slide 19: BorgWarner Difference
BorgWarner Difference 19
Slide 20: BorgWarner Difference
BorgWarner Difference • Superior Sales Growth Through Technology Leadership • Customer and Geographic Diversity • Cost Reduction Focus • Financial Discipline 20
Slide 21: Growth in Low Growth Industry
Growth in Low Growth Industry BorgWarner Sales CAGR vs. Auto Industry Production CAGR 500 BorgWarner 13.1% 400 Growth Index 300 Global Production 3.3% 200 North American Production 1.3% 100 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 21
Slide 22: Balanced Market Presence
Balanced Market Presence 2006 Projected Revenue by Region* 40% 22% Detroit 3 6% Americas Other Customers Asia Europe 18% 8% 6% Commercial Vehicles Asian Transplants *Includes NSK Warner 22
Slide 23: Customer Diversity
Customer Diversity 2006 Projected Revenue by Customer* Honda 3% Hyundai/Kia 6% BMW 2% Renault/Nissan 7% PSA 2% Toyota 7% GM 8% International 2% Caterpillar 2% DCX 12% ZF 1% John Deere 1% VW/Audi 12% All Others 21% Ford 14% * Includes NSK Warner 23
Slide 24: New Business 2007 thru 2009
New Business 2007 thru 2009 Americas: 27% Europe: 46% Asia: 27% International VW/Audi Hyundai • Turbochargers •Turbochargers • Engine timing •DualTronic® • Transfer cases DaimlerChrysler •Engine sensors • Turbochargers • Transfer cases •Engine timing • Transmission modules and •Diesel cold start VW/
Slide 25: New Business by 2009
New Business by 2009 By Product Engine Timing Other (including VCT) 6% 11% DCT 15% AWD Turbochargers 6% (VTG, R2S) 40% Drivetrain Other 22% Engine 25
Slide 26: Cost Reduction Focus
Cost Reduction Focus • Facilities are profit centers charged with developing plans that will offset higher direct and allocated costs • Performance to plan is reviewed regularly – Contingencies implemented as required Operating Margins 9.2% 8.9% 8.8% 8.8% 8.2% 7.5% 6.1% 2000 2001 2002 2003 2004 2005
Slide 27: Financial Discipline
Financial Discipline • Business decisions are based on a targeted return on invested capital (“ROIC”) of 15% – Prudent pursuit of new business • Compensation at all levels linked to creating economic value – Efficient use of capital – Managers, employees and shareholders goals are aligned Return on
Slide 28: Financial Performance
Financial Performance 28
Slide 29: Earnings Performance
Earnings Performance Annual EPS* $4.13 - $4.28 $4.33 $3.66 $3.20 $2.79 $2.51 $1.62 2000 2001 2002 2003 2004 2005 2006E * Excludes the following for comparability purposes: • Non-recurring charges and restructuring of $0.74 per diluted share in 2000; • Non-recurring charges of $0.36 per diluted share
Slide 30: Balance Sheet Strength
Balance Sheet Strength $ in Millions 9/30/2006 12/31/2005 Cash and cash equivalents $67 $90 Marketable securities 71 41 Total debt 763 741 Total equity 1,877 1,644 Total capital $2,640 $2,385 Debt to capital ratio 28.9% 31.1% 30
Slide 31: 2006 Expectations
2006 Expectations Sales Growth 4.5% - 5.0% EPS Guidance -U.S. GAAP $3.80 - $3.95 -excluding restructuring charge $3.95 - $4.10 -excluding restructuing charge and FAS123(R) $4.13 - $4.28 -excluding restructuring charge, FAS123(R) and the impact of currency $4.25 - $4.35 Net Cash Provided by Operating
Slide 32: North American Restructuring
North American Restructuring • Proactively re-sized our North American operations to match revised expectations of our North American business going forward • Reduced North American workforce by ~13%, or ~850 people • Incurred a one-time restructuring charge of $0.15 per share in Q3 2006 32
Slide 33: BorgWarner Difference
BorgWarner Difference • Superior Sales Growth Through Technology Leadership • Customer and Geographic Diversity • Cost Reduction Focus • Financial Discipline 33
Slide 34: Forward-Looking Statements
Forward-Looking Statements Statements contained in this presentation may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act that are based on management's current expectations, estimates and projections. Words such as "expects," "anticipates," "in
Slide 35: Appendix I: U.S. GAAP to non-U.S. GAAP EPS Reconciliation
Appendix I U.S. GAAP to non-U.S. GAAP EPS Reconciliation 35
Slide 36: EPS Reconciliation
EPS Reconciliation Actual and Forecasted Results Earnings per diluted share 2000 2001 2002 2003 2004 2005 2006E U.S. GAAP $1.77 $1.26 ($2.22) $3.20 $3.86 $4.17 $3.80-$3.95 Non-U.S. GAAP adjustments: Non-recurring charges and restructuring 0.74 0.36 0.71 0.15 Change in accounting related to goodwill
Slide 37: EPS Reconciliation: 2006 Guidance
EPS Reconciliation 2006 Guidance U.S. GAAP $3.80 - $3.95 Restructuring charge ~0.15 Non-U.S. GAAP $3.95 - $4.10 Implementation of FAS 123(R) ~0.18 Non-U.S. GAAP excluding FAS 123(R) $4.13 - $4.28 Impact of currency 0.06 - 0.02 Non-U.S. GAAP excluding FAS 123(R) and impact of currency $4.19 - $4.30 3
Slide 38: Appendix II: Additional Information
Appendix II Additional Information 38
Slide 39: 2005 Revenue by Market
2005 Revenue by Market 7% 7% 12% North American Class 8 Truck sales approximately 4% of total 2005 revenue 74% Passenger Car, Light Truck, Van & SUV Medium and Heavy Truck Aftermarket Other 39
Slide 40: Turbocharger Growth by Market
Turbocharger Growth by Market Diesel Engines Gasoline Engines 20 5 16.4 1.1 4 15 Units in Millions Units in Millions 0.7 2.6 12.4 3 0.3 1.8 2.5 10 2 0.1 11.3 1.7 0.8 5 9.2 0.7 1 1.3 0.7 1.4 0.8 0.1 0.1 0 0 2005 2010E 2005 2010E China/India/Thailand China/India/Thailand Japan/Korea Japan/Korea Europe
Slide 41: Consolidated Sales
Consolidated Sales Currency Impact on CAGR Up to $170M unfavorable currency impact expected in 2006 5,000 1999-2006E CAGR, including impact of currency: 9.2% - 9.8% 4,500 1999-2006E CAGR, excluding impact of currency: 9.1% - 9.3% 4077.0 5% - 7% Consolidated 4,000 Sales growth in 2006 3,332.4 Dollars
Slide 42: Balanced Customer Profile
Balanced Customer Profile 2006 Projected Revenue by Customer Group* 22% 32% 25% 7% Detroit 3 in North America 14% European OEMs Japanese OEMs Korean OEMs Other *Includes NSK Warner 42