Earnings Call Presentation Q2 2017 July 27, 2017
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 forwardlooking 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
Investor Day 2017 Date: Monday, August 7, 2017 Time: 9:30AM 1PM Where: New York Stock Exchange, 11 Wall Street Will feature presentations by: James Verrier, President & CEO Ron Hundzinski, Executive Vice President & CFO Christopher P. Thomas, Vice President & CTO Registration Deadline July 28th BorgWarner Inc. 3
Reconciliation to US GAAP $ in millions, except per share data US GAAP (Reported) Restructuring Expense M&A Expense Contract Expiration Gain Tax Adjustments Non-US GAAP (Excluding noncomparable Items, including M&A) 2017 Q2 Sales $2,389.7 $2,389.7 Operating income 299.5 299.5 % of sales 12.5% 12.5% Diluted EPS $1.00 $0.05 $0.96 2016 Q2 Sales $2,329.2 $2,329.2 Operating income 269.4 (17.8) (7.2) 7.5 286.9 % of sales 11.6% 12.3% Diluted EPS $0.76 $(0.07) $(0.03) $0.02 $-- $0.84 BorgWarner Inc. 4
Agenda James Verrier President and Chief Executive Officer Macro Outlook and Industry Perspective Q2 2017 Recap and 2017 Outlook Recent Product Announcements Ron Hundzinski Chief Financial Officer Q2 2017 Results 2017 Guidance Q&A BorgWarner Inc. 5
Industry Perspective and Company Update James Verrier, President and Chief Executive Officer
Macro Outlook and Industry Perspective General Comments Market Outlook Regulatory/Technology Trends BorgWarner Inc. 7
Q2 17 Recap and 2017 Outlook Q2 17 organic exceeds the high-end of the range and our operating performance was in-line with expectations. 2017 Revenue and Operating Profit Guidance increased BorgWarner Inc. 8
Recent Product Announcements Dual-clutch and Control Modules for Great Wall Motors. 48-volt ebooster electrically driven compressor for Daimler s latest 3.0-liter gasoline engine. Sprag One-way Clutch for Chrysler Pacifica Hybrid. Two-stage (R2S ) Turbocharging Technology for Great Wall Motor s new 2.0-liter 4-cylinder diesel engine. BorgWarner Inc. 9
Sevcon Acquisition A global player in electrification technologies. Complements BorgWarner s existing power electronics capabilities. Expected enterprise value at closing ~$200 million. The transaction is expected to close in Q4 17. BorgWarner Inc. 10
Earnings Review and Financial Outlook Ron Hundzinski, Executive Vice President & Chief Financial Officer
BorgWarner Net Sales Q2 2016 to Q2 2017, $ in millions $234 $2,329 $(77) $2,252 $(58) $(38) $2,390 Q2 2016 net sales including Remy AM 2016 Remy Aftermarket Impact 2016 Proforma Backlog Market growth/pricing FX Q2 2017 net sales Organic Sales Growth of 7.8% BorgWarner Inc. 12
BorgWarner Operating Income* Q2 2016 to Q2 2017, $ in millions $26 $287 $287 $306 $(8) $300 $(6) $300 12.8% margin 12.5% margin Q2 2016 operating income* Market growth, price, net new business and performance Corporate, Raws & Other FX Q2 2017 operating income from continuing operations 12.3% Margin 12.5% Margin * Operating income as shown on this slide is non-us GAAP. See reconciliation to US GAAP BorgWarner Inc. 13
Engine Segment Net Sales & Adjusted EBIT Q2 2016 to Q2 2017, $ in millions $65 $1,444 4.5%* $(27) $1,482 Q2 2016 net sales Market growth, price and net new business FX Q2 2017 net sales $12 $238 18% incremental margin $(5) $244 Q2 2016 adjusted EBIT 16.5% Margin Market growth, price, net new business and performance FX Q2 2017 adjusted EBIT 16.5% Margin * % change to net sales BorgWarner Inc. 14
Drivetrain Segment Net Sales & Adjusted EBIT Q2 2016 to Q2 2017, $ in millions $895 $(77) $818 $113 13.8%* $(10) $921 Q2 2016 net sales including Remy AM 2016 Remy Aftermarket Impact 2016 Proforma Market growth, price and net new business FX Q2 2017 net sales $16 $(1) $110 $95 $0 $95 14% incremental margin Q2 2016 net sales including Remy AM 2016 Remy Aftermarket Impact 2016 Proforma Market growth, price, net new business and performance FX Q2 2017 adjusted EBIT 10.6% Margin 11.9% Margin * % change to net sales BorgWarner Inc. 15
2017 Full Year Guidance BorgWarner Inc. 16
Organic Sales Growth of 6.5% - 7.5% $ in millions $740 $(75) $9,071 $(255) $8,816 $690 $(125) $(100) $9,331 $9,331 2016 net sales including Remy AM Remy Aftermarket Impact 2016 Proforma Backlog Market Growth/Pricing FX 2017 net sales BorgWarner Inc. 17
Operating Margins Expand by 30-40 bps $ in millions $106 $1,114 $85 $(13) $1,191 $(17) $1,168 13.1% margin 2016 preliminary operating income 12.3% Margin Market growth, price and backlog Headwinds from corporate costs and raw material FX 2017 operating income 12.6% - 12.7% Margin BorgWarner Inc. 18
2017 Guidance Update - Other Items EPS Guidance $3.65-$3.70 Free Cash Flow $450-$500 million CapEx $500-$550 million Share Repurchases $100 million R&D Spending ~4% of sales Tax Rate ~29% $ / Euro Exchange Rate $1.10 BorgWarner Inc. 19
2017 Third Quarter Guidance BorgWarner Inc. 20
Organic Sales Growth of 3.0% - 6.0% $ in millions $150 $(32) $2,214 $(68) $2,146 $100 $(21) $2,244 $(36) $2,208 Q3 2016 net sales including Remy AM Remy Aftermarket Impact Q3 2016 Proforma Backlog Market Growth/Pricing FX Q3 2017 net sales BorgWarner Inc. 21
YoY Incremental Margins to Improve Sequentially $ in millions $0.06 $0.05 $0.87 $0.84 $0.78 $0.03 $(0.02) Q3 2016 EPS Market growth, price, net new business and performance FX Lower share count & tax rate Q3 2017 EPS from continuing operations BorgWarner Inc. 22
Thank you! BorgWarner Inc. 23