IN THE BLINK OF AN EYE. Second Quarter Financial Results Presentation WE PUT THE THINKING IN SAFETY COGNITIVE SAFETY SYSTEMS

Transcription

1 IN THE BLINK OF AN EYE Second Quarter 2014 Financial Results Presentation WE PUT THE THINKING IN SAFETY COGNITIVE SAFETY SYSTEMS July 29, 2014

2 Safe Harbor Statement This presentation contains statements that are not statements of historical fact, but instead are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of We caution readers not to place undue reliance on these statements, which speak only as of the date hereof. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those suggested by our forward-looking statements, including those set forth in the Company s Annual Report on Form 10-K for fiscal year ended December 31, 2013 under Item 1A. Risk Factors, and our Report on Form 10-Q for the quarter ended March 28, 2014, including: economic conditions adversely affecting our business, results or the viability of our supply base; risks associated with non-u.s. operations, including economic and political uncertainty in some regions, adversely affecting our business, results or financial condition; the unsuccessful implementation of our current expansion efforts adversely impacting our business or results; any developments related to antitrust investigations adversely affecting our financial condition, results, cash flows or reputation; pricing pressures from our customers adversely affecting our profitability; global competition adversely affecting our sales, profitability or financial condition; any disruption in our information technology systems adversely impacting our business and operations; any shortage of supplies causing a production disruption for any customers or us; the loss of any of our largest customers or a significant amount of their business, or a significant decline in their production levels, adversely affecting us; strengthening of the U.S. dollar and other foreign currency exchange rate fluctuations impacting our results; our contingent liabilities and tax matters causing us to incur losses or costs; any inability to protect our intellectual property rights adversely affecting our business or our competitive position; commodity inflationary pressures adversely affecting our profitability or supply base; costs or adverse effects on our business, reputation or results from governmental regulations; work stoppages or other labor issues at our facilities or those of our customers or others in our supply chain adversely affecting our business, results or financial condition; any increase in the expense of our pension and other postretirement benefits or the funding requirements of our pension plans reducing our profitability; and other risks and uncertainties set forth in our Annual Report on Form 10-K, in Executive Overview and in our other filings with the Securities and Exchange Commission. We do not undertake any obligation to release publicly any update or revision to any of the forward-looking statements. P2

3 Business Summary John C. Plant Chairman and CEO P3

4 Summary Comments Healthy consumer demand, driven by favorable industry fundamentals and the release of pent-up demand in Europe, has resulted in modest upward revisions to global production forecasts: In the U.S, a strong spring selling season pushed the annual selling rate to over 16 million units in the first half of 2014; Q2 production in North America was up 4% y-o-y. In Europe, the Western European annual selling rate has stabilized at about 12.0 million units; Q2 production for total Europe was up 2% y-o-y. Growth in China continues; Q2 production up 12% y-o-y. TRW s second quarter results and first half performance reflect the Company s focus and ability to capitalize on increasing demand for its safety technologies: Second quarter sales of $4.6 billion and first half sales of $9.0 billion; an increase of 8% (for the quarter and first half) excluding the effect of businesses exited. Excluding special items, Q2 operating income and margin of $389 million and 8.5%, respectively; first half operating profit and margin of $717 million and 7.9%, respectively. (a) Excluding special items, Q2 net earnings of $2.32 per diluted share (up 15% y-o-y); first half net earnings of $4.12 per diluted share (up 17% y-o-y). (a) TRW is focused to ensure the positive momentum continues. TRW s first half results provide a firm foundation for achieving the Company s full year goals. (a) For adjusted results reconciliation to nearest GAAP equivalent, see slides P13 and P17. P4

5 Second Quarter Summary Financial Summary (US $ in millions, except where noted) Sales Summary Sales Europe ROW Net Earnings Summary North America $4,593 $4,514 Q Q (7%) 7% 6% (China up 15%) Up 10% excluding the effect of terminated businesses Q Q GAAP Adjusted (a) GAAP Adjusted (a) Net Earnings $ 265 $ 270 $ 248 $ 252 Q2 Vehicle Production (% changes based on year-over-year comparisons and IHS data) North America Actual Detroit 3 3% EU OE 7% Asian OE 2% Total Region 4% Europe West 2% East 1% Total Region 2% ROW China 12% Brazil -23% India 0% Diluted Earnings Per Share $ 2.27 $ 2.32 $ 1.99 $ 2.02 Up 15% (a) For adjusted results reconciliation to nearest GAAP equivalent, see slide P13. P5

6 First Half Summary Financial Summary (US $ in millions, except where noted) Sales Summary Sales Europe ROW Net Earnings Summary North America $9,035 $8,727 FH 2014 FH 2013 (4%) 8% 7% Up 10% excluding the effect of terminated businesses FH 2014 FH 2013 GAAP Adjusted (a) GAAP Adjusted (a) Net Earnings $ 464 $ 485 $ 410 $ 441 First Half Vehicle Production (% changes based on year-over-year comparisons and IHS data) North America Actual Detroit 3 5% EU OE 8% Asian OE 1% Total Region 4% Europe West 6% East 3% Total Region 5% ROW China 10% Brazil -15% India -6% Diluted Earnings Per Share $ 3.95 $ 4.12 $ 3.28 $ 3.52 Up 17% (a) For adjusted results reconciliation to GAAP, see slide P17. P6

7 Strengthening Our Current Position Successfully launched 65 programs during Q2 Mercedes Benz: C-Class (Asia Pacific/ Europe/ North America): Curtain, Passenger, Side and Knee Airbags; Front Caliper Foundation Brakes; Electric Park Brake; Seat Belts Mercedes Benz C-Class BMW: X4 (North America): Brake Actuation; Curtain and Side Airbags; Rear Caliper Foundation Brakes; Electric Park Brake with ECU; Seat Belts BMW X4 Peugeot: Citroen C-Cactus (Europe): Brake Actuation; Driver and Passenger Airbags; Rear Caliper Foundation Brakes; Seat Belts; Steering Wheel Peugeot C-Cactus Product launches across multiple segments and geographic regions continue to strengthen our leading diversification. P7

8 2014 Operating Environment Consumer demand continues to support the current level of production in North America; full year 2014 production forecast at 17.0 million units. In Europe, despite continued signs of a rebounding industry, normal seasonality is expected to impact vehicle production in the near term. Vehicle production expansion is expected to continue in China. Industry Production Assumptions (1) (units in millions) North America E 2011E Q3E Detroit 3 Other Industry Production Assumptions (1) (units in millions) China & Brazil Industry Production Assumptions (1) (units in millions) Europe E E China Brazil Q3E E E Western Eastern Q3E (1) Source: IHS light vehicle assumptions and Company estimates. P8

9 Outlook Despite healthy consumer demand and better-than-expected production levels in the first half of 2014, normal seasonality and significant model changes are expected to influence near-term production schedules: Third quarter production in North America and Western Europe expected to be 4.3 and 3.0 million, respectively. Full year 2014 production is expected to be 17.0 million in North America (up 5%) and 19.9 million in Europe (up 2%). Continued growth is expected in China. TRW s forecasted 2014 sales reflect strong first half performance and current production levels: Full year sales are expected to range between $17.5 billion and $17.7 billion (including third quarter sales of about $4.2 billion). Looking forward TRW is focused on profitably growing the business, generating cash, and enhancing shareholder value. TRW s strong market position and first half results provide a solid base for the Company to achieve its goals in P9

10 Financial Overview Joseph S. Cantie Executive Vice President and Chief Financial Officer P10

11 Financial Summary Second quarter sales variance: Second quarter sales of $4.6 billion, up $79 million from prior year period. Excluding the effect of terminated businesses and currency movements, sales were up 6% y-o-y. Sales driven by increasing demand for TRW s technologies and vehicle production growth in the Company s major markets. Sales in China increased 15% y-o-y and accounted for 17% of TRW s second quarter sales. Second Quarter 2014 Sales Walk US $ in millions $255 $72 $4,514 $4,593 $(248) Q Sales Core Sales Currency Terminated Q Sales Businesses TRW s Q2 sales reflect the Company s focus and ability to capitalize on increasing demand for its safety technologies. P11

12 Financial Summary Second quarter earnings: Excluding special items, second quarter operating income and margin of $389 million and 8.5%, respectively. (a) The positive impact of higher level of sales was partially offset by planned cost increases to support future growth. Excluding special items, earnings were $2.32 per diluted share, up 15% compared to last year s Q2 earnings of $2.02 per diluted share. (a) Second Quarter 2014 GAAP to Adjusted EPS Walk $2.27 GAAP EPS $0.05 Restructuring Charges & Tax Benefits $2.32 Adjusted EPS (a) TRW drove the positive momentum established earlier this year into the second quarter (a) Refer to slide P13 for reconciliation to nearest GAAP equivalent and share count and slide P26 for special items detail. P12

13 Second Quarter Results (In millions, except where noted) GAAP Results Q Q Adjusting Items (a) Adjusted Results GAAP Results Adjusting Items (a) Adjusted Results Sales $ 4,593 $ - $ 4,593 $ 4,514 $ - $ 4,514 Operating Income Operating Margin 8.3% 8.5% 8.5% 8.6% Interest Expense - Net Loss on Retirement of Debt - Net (5) - Equity in Earnings of Affiliates, Net of Tax (10) - (10) (11) - (11) Income Tax Expense Net Earnings $ 275 $ 5 $ 280 $ 260 $ 4 $ 264 Less: Net Earnings Attributable to Noncontrolling Interest, Net of Tax Net Earnings Attributable to TRW $ 265 $ 5 $ 270 $ 248 $ 4 $ 252 Share Count Diluted Earnings Per Share $ 2.27 $ 2.32 $ 1.99 $ 2.02 Up 15% y-o-y (a) Refer to slide P26 for special items detail. P13

14 Second Quarter Results EBITDA & Adjusted EBITDA (a) US $ in millions Second Quarter GAAP Net Earnings Attributable to TRW $ 265 $ 248 Income Tax Expense Interest Expense - Net Depreciation & Amortization EBITDA $ 494 $ 486 Restructuring Charges and Asset Impairments 6 1 Loss on Retirement of Debt - Net - 5 Adjusted EBITDA $ 500 $ 492 (a) Refer to slide P24 for management s rationale for using these metrics. P14

15 Financial Summary First half sales variance: First half sales of $9.0 billion, an increase of $308 million or 3.5% from prior year. Increased demand for TRW s active and passive safety technologies and higher production volume more than offset the negative impact of terminated business. First Half 2014 Sales Walk US $ in millions $566 $120 $8,727 $9,035 $(378) FH 2013 Sales Core Sales Currency Terminated FH 2014 Sales Business Sales in China increased 16% y-o-y and accounted for 16% of TRW s first half sales. Excluding the impact of terminated businesses, TRW s sales increased in each of the Company s major markets. P15

16 Financial Summary First half earnings: Excluding special items, first half operating profit and margin was $717 million and 7.9%, respectively. (a) First Half 2014 GAAP to Adjusted EPS Walk The associated profit impact from the higher level of sales was partially offset by planned increases in costs to support future growth. First half GAAP net earnings of $3.95 per diluted share; excluding special items, earnings were $4.12 per diluted share, up 17% year-on-year. (a) $3.95 GAAP EPS $0.21 Restructuring Charges and Asset Impairments $(0.04) Tax Benefit $4.12 Adjusted EPS (a) TRW s first half performance provides a firm foundation for the Company to achieve its goals in (a) Refer to slide P17 for reconciliation to GAAP and share count and slide P26 for special items detail. P16

17 First Half Results (In millions, except where noted) GAAP Results First Half 2014 First Half 2013 Adjusting Items (a) Adjusted Results GAAP Results Adjusting Items (a) Adjusted Results Sales $ 9,035 $ - $ 9,035 $ 8,727 $ - $ 8,727 Operating Income Operating Margin 7.6% 7.9% 7.3% 7.7% Interest Expense - Net Loss on Retirement of Debt - Net (5) - Equity in Earnings of Affiliates, Net of Tax (20) - (20) (23) - (23) Income Tax Expense Net Earnings $ 484 $ 21 $ 505 $ 433 $ 31 $ 464 Less: Net Earnings Attributable to Noncontrolling Interest, Net of Tax Net Earnings Attributable to TRW $ 464 $ 21 $ 485 $ 410 $ 31 $ 441 Share Count Diluted Earnings Per Share $ 3.95 $ 4.12 $ 3.28 $ 3.52 (a) Refer to slide P26 for special items detail. P17

18 First Half Results EBITDA & Adjusted EBITDA (a) US $ in millions First Half GAAP Net Earnings Attributable to TRW $ 464 $ 410 Income Tax Expense Interest Expense - Net Depreciation & Amortization EBITDA $ 911 $ 845 Restructuring Charges and Asset Impairments Loss on Retirement of Debt - Net - 5 Adjusted EBITDA $ 937 $ 888 (a) Refer to slide P24 for management s rationale for using these metrics. P18

19 Capital Structure Summary Second quarter operating cash flow and free cash flow of $257 million and $126 million, respectively. (a) Free Cash Flow (a) US $ in millions Three Months Ended First Half Ended Capital expenditures totaled $131 million in Q compared to $167 in Q At June 27, 2014, total gross and net debt of $1,892 million and $961 million, respectively. (b) June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Operating Cash Flow $ 257 $ 271 $ 74 $ 93 Capital Expenditures (131) (167) (236) (271) Free Cash Flow $ 126 $ 104 $ (162) $ (178) Net Debt (b) US $ in millions Year Ended $1,583 $768 $291 $239 $385 $ Q Memo: Net Leverage (c) 0.2x 0.5x (a) Refer to P27 for management s rationale for using this metric. (b) Net debt is equal to total debt less cash and marketable securities. For a calculation of net debt refer to P28. (c) Net leverage represents period ending net debt divided by Adj. EBITDA for the preceding twelve months. Refer to P24 for management s rationale for using these metrics and P25 for a reconciliation of Adj. EBITDA and net leverage to nearest GAAP equivalent. P19

20 Maturity Schedule of Significant Debt (US $ in millions) As of 06/27/14 Revolver ($1,400) (a) $ % Senior USD % Senior USD Debt Maturity (as of June 27, 2014 US $ equivalents in millions) Revolver 3.500% Exchangable Notes, at face amount 4.45% Bonds 4.50% Bonds 7.250% Bonds $1,841 Includes $1,400 million undrawn revolver (a) 4.45% Senior USD % Exchangeable Other 503 Total Debt $ 1,892 $400 $400 Cash and Cash Equivalents (931) Net Debt $ 961 $ Solid and flexible capital structure remains in place. (a) Subject to earlier maturity in November 2016 under certain conditions. P20

21 Outlook Discussion Planning Assumptions 2014 Full Year Third Quarter Projection Estimate (Production in mils) Industry Volumes: N.A Europe Sales $ $17.7 bil $4.2 bil Capital Spending $730 - $750 mil - Restructuring Expense $65 mil - Interest Expense $115 mil - Tax Rate 27% 29% - TRW is on track and remains focused on achieving its key objectives for the year. P21

22 Key Investment Highlights Growth Consistent ability over time to generate sales in excess of industry growth in each of TRW s major geographic regions. Increasing demand for TRW s innovative products (electric power steering, electronic park brake, driver assist systems, etc.). Governments and vehicle manufacturers continue to place a high importance on vehicle safety; regulations in high growth markets are expected to expand. Cash Generation / Maximizing Shareholder Value Consistent ability to generate substantial cash flow. Cash generation has enabled TRW to transition from a levered company to an investment grade company. Continued cash generation will support TRW s growth strategy and ongoing shareholder value enhancements. Market Position Highly diversified sales (continued growth in ROW region), customers (VW and Ford provide firm foundation) and products (broadest array of active and passive safety products). Global footprint and innovative technologies that support our customers global platform strategies. Strong balance sheet and flexible capital structure to support future growth. P22

23 Appendix and Financial Reconciliations P23

24 Non-GAAP Financial Measurements The accompanying unaudited consolidated financial information, reconciliation of GAAP net earnings to EBITDA and Adjusted EBITDA (as defined below) and calculation of net leverage, should be read in conjunction with the TRW Automotive Holdings Corp. Annual Report on Form 10-K for the year ended December 31, 2013, and our report on form 10-Q for the quarter ended March 28, 2014, which contain summary historical data. Since all companies do not use identical calculations, our definition and presentation of these measures may not be comparable to similarly titled measures reported by other companies. EBITDA and Adjusted EBITDA Earnings before income tax (benefit) expense, interest expense and depreciation and amortization ( EBITDA ) is a measure used by management to evaluate the operating performance of the Company and its business segments and to forecast future periods. Adjusted EBITDA is defined as EBITDA excluding restructuring charges, asset impairments, loss on retirement of debt, and other significant special items. Management uses Adjusted EBITDA to evaluate the performance of ongoing operations separate from items that may have a disproportionate impact in any particular period. EBITDA and Adjusted EBITDA are frequently used by securities analysts, institutional investors and other interested parties in the evaluation of companies in our industry. EBITDA and Adjusted EBITDA do not purport to be alternatives to net earnings as an indicator of operating performance, nor to cash flows from operating activities as a measure of liquidity. Additionally, neither is intended to be a measure of free cash flow for management s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Net Leverage Net Leverage is calculated as Net Debt divided by Adjusted EBITDA for the preceding twelve months. We believe that Net Leverage is an important metric for industry analysts and investors in evaluating the Company's liquidity and ability to service existing debt. However, Net Leverage is not a recognized term under GAAP as a measure of financial performance and it does not purport to be an alternative to cash flows from operating activities as a measure of liquidity. P24

25 EBITDA, Adjusted EBITDA and Net Leverage EBITDA, Adjusted EBITDA and Net Leverage (a) US $ in millions 2013 Year Ended 2014 Q Q3 Q Q1 Q2 LTM GAAP Net Earnings Attributable to TRW $ 197 $ 363 $ 970 $ 199 $ 265 $ 1,024 Income Tax (Benefit) Expense 62 (107) Interest Expense - Net Depreciation & Amortization EBITDA $ 398 $ 403 $ 1,646 $ 417 $ 494 $ 1,712 Restructuring Charges and Asset Impairments Pension Buyouts and OPEB Curtailments Loss on Retirement of Debt - Net Noncontrolling Interest Impact of Certain Tax Matters - (7) (7) - - (7) Adjusted EBITDA $ 403 $ 447 $ 1,738 $ 437 $ 500 $ 1,787 Net Debt (b) $ 385 $ 961 Net Leverage (c) 0.2x 0.5x (a) Refer to slide P24 for management s rationale for using these metrics. (b) Net debt is equal to total debt less cash and marketable securities. For a calculation of net debt refer to slide P28. (c) Net leverage represents period ending net debt divided by Adj. EBITDA for the preceding twelve months. P25

26 Second Quarter and First Half Special Items (US $ in millions) Three Months Ended First Half Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Restructuring Charges and Asset Impairments $ 6 $ 1 $ 26 $ 38 Loss on Retirement of Debt - Net Total Special Items Before Income Taxes $ 6 $ 6 $ 26 $ 43 Less: Tax Benefit (a) Total Special Items $ 5 $ 4 $ 21 $ 31 (a) Represents the elimination of the tax income impact of the above adjustments by calculating the income tax impact of each of these items using the appropriate tax rate for the jurisdiction where the charges were incurred. P26

27 Free Cash Flow Free cash flow represents net cash provided by (used in) operating activities less capital expenditures, and is used by management in analyzing the Company s ability to service and repay its debt and to forecast future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service debt or for other non-discretionary expenditures. This measure should not be used as a substitute for cash flow provided by (used in) operating activities. Further, since all companies do not use identical calculations, our definition and presentation of free cash flow may not be comparable to similarly titled measures reported by other companies. Three Months Ended First Half Ended (US $ in millions) June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Operating Cash Flow $ 257 $ 271 $ 74 $ 93 Capital Expenditures (131) (167) (236) (271) Free Cash Flow $ 126 $ 104 $ (162) $ (178) P27

28 Net Debt Calculation (US $ in millions) Year End Balance Period End Balance 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 06/27/14 Cash and cash equivalents $ 788 $ 1,078 $ 1,241 $ 1,223 $ 1,729 $ 931 Short-term debt Senior notes due Senior notes due Senior notes due Senior notes due Exchangeable senior notes due Term loan facilities Revolving credit facilities Other borrowings Total debt 2,371 1,846 1,532 1,462 2,114 1,892 Net debt $ 1,583 $ 768 $ 291 $ 239 $ 385 $ 961 P28