Analyst and Investor Conference Call
Financial results 9M/2015
28 October 2015
1
Highlights 9M/2015
Market environment
• Robust passenger car registrations in the U.S. and Europe
• U.S.: + 5.0 per cent to 13.05 million cars
• Europe: + 8.8 per cent to 10.41 million cars
• China: + 2.8 per cent to 14.55 million cars after a weak Q3 (-1.5 per cent)
Financial performance
• Group sales: +11.5 per cent to € 358.5 million
• Adjusted EBITDA: +5.8 per cent to € 33.0 million; impacted by non-timely execution of efficiency
measures in the Powder Metallurgy
• Net income for the period: + 12.4 per cent to € 12.4 million influenced by equity result of Chinese joint
venture
• Reduction of net debt by 63.6 per cent to € 9.0 million affected by high investments and successful
capital increase of € 24.6 million in February 2015
2
3.4%
2019
19.6
2018
19.1
2017
18.5
2016
18.0
2015
18.0
2014
16.8
2013
16.0
Source: PwC Autofacts – January 2015
Overall positive market development despite China‘s loosing momentumLight vehicle production (< 6 t) – Europe (m units) Light vehicle production (< 6 t) – North America (m units)
18.4
2016
18.1
2015
17.5
2014
17.1
2013
16.2
3.2%
2019
19.6
2018
19.0
2017
25.0
2015
23.1
2014
22.1
2013
20.4
6.5%
2019
29.7
2018
28.5
2017
26.9
2016 2018
4.7
3.8
2014 20172016
3.1
4.1
4.5
20152013
4.6
2019
0.3%
3.5
CAGRCAGR
CAGR
CAGR
Light vehicle production (< 6 t) – China (m units) Light vehicle production (< 6 t) – South America (m units)
SHW benefits from global footprint and challenging CO2 regulations in all strategic marketsSource: PwC Autofacts – October 2015
3
International presence enables further international growth
SHW’s internationalisation strategy works out!
Bad SchussenriedEmployees: 559
Wasseralfingen incl. HQEmployees: 341
NeuhausenEmployees: 152
TuttlingenEmployees: 236
Status: 30 September 2015
São Paulo, BrazilEmployees: 4
Shanghai, ChinaEmployees: 8
LongKou, ChinaEmployees: 113
Detroit, U.S.Employees: 1
Toronto, CanadaEmployees: 5
4
Status internationalisation: Pumps and Engine Components
North America:
• Re-entry into market – nomination as serial supplier by North American OEM for variable engine
oil pumps for global engine platform (North America, Europe and China); lifetime value € 160 m
China:
• Contract gain Q1/2015: production of local content of variable engine oil pumps for North
American OEM; SoP in 2019
• In Q3/2015 nomination as serial supplier of electric auxiliary pumps for start-stop function as well
as transmission oil pumps for dual-clutch from a Chinese OEM (lifetime value: € 70 m - 80 m)
Brazil:
• 2015: despite challenging market environment positive results year-to-date
Eastern Europe:
• Partial relocation of production capacities to Eastern or South Eastern Europe – final decision
and set-up in 2016; SoP in 2017
SHW benefits from global footprint and optimization of production network
5
Sales activities in China starting to bear fruit – new series order
• Q3/2015: nomination as serial supplier of electric auxiliary pumps for start-stop function and
transmission oil pumps for dual-clutch from a Chinese OEM
• Lifetime value between € 70 m and € 80 m
• Start of production at Chinese facility in Kunshan in 2017
• Product advantages:
• Realisation of CO2 savings by structural improvements and weight reductions
• Contribution to pleasant driving with reduced noise and pulsation levels
Primary transmission oil pumps to become a further strategic pillar
6
Status internationalisation: Brake Discs
China:
• Start of operation of the joint venture SHW Longji Brake Discs (LongKou) on 1 April
• Currently “LongKou” produces unprocessed brake discs for the joint venture partner with fixed
profit margins
• Production capacity will be shifted to ready-to-install brake discs for new OEM/OES business
over time
• Management focus on improving system and process quality for attaining the certification
according to ISO/TS16949
• Concrete customer enquiries received shortly after start of operation
NAFTA:
• Further analysis of market potentials for light weight brake discs and evaluation of market entry
strategies
SHW’s internationalisation strategy works out!
7
Results impacted by backlog in executing efficiency measures
€ m 9M/2015 9M/2014 Change in %
Group sales 358.5 321.4 +11.5%
Incoming orders 343.9 328.6 +4.7%
Adj. EBITDA 33.0 31.2 +5.8%
Depreciation (excl. PPA) 16.5 13.2 +24.3%
Adj. EBIT 16.5 18.0 -8.0%
Net income for the period 12.4 11.0 +12.4%
EPS (in €)1) 1.95 1.88 +3.9%
Working Capital Ratio (%) 11.7 11.3
Capex2) 19.3 24.7 -21.9%
Operating free cash flow3) -3.6 -15.9 -77.4%
Net Debt -9.0 -24.8 -63.6%
ROCE (%) 14.0 15.8
No. of employees (average) 1,281 1,145 +11.9%
1) 9M/2015: based on an average of 6,333,333 shares / 9M/2014: based on an average of 5,851,100 shares.2) Additions to tangible and intangible assets.3) Operational free cash flow w/o investments in financial assets.
8
GroupSales by quarter (€m)
118.3
Q4
108.6
Q3
109.4
Q2
123.1107.3
Q1
117.0104.8
20152014
11.5%
9M/2015
358.5
9M/2014
321.4
Sales (€m)
Growth driven by strong customer call orders for variable oil-/vacuum pumps and camshaft phasers
Q1
11.0
8.8 9.4
Q3
11.3
Q2
11.911.1
Q4
10.020152014
Adj. EBITDA (€m) Adj. EBITDA by quarter (€m)1
9.2%
+5.8%
9M/20159M/2014
31.2
9.7%
33.0
1 Readjustment of Q2 / Q3 2014 figures due to non-recurring serial start-up costs
8.4% 10.3% 10.3% 8.7%9.4% 9.7% 8.5%
9
Increased sales with leading key accounts
14.7
1.9
14.7
2.2
14.7 17.5
2.3
2.2
14.7 17.5
2.3
Sales by customer (€m)
German OEMs and Tier 1 suppliers as major customers
PSA 9.15.2
Ford
Daimler 64.3
27.9BMW 26.9
9.9
17.8Volvo Cars 22.3
15.7Porsche
13.5
17.5
91.1
61.2
85.7VW
55.4
7.37.9
ThyssenKrupp
Other 52.5
38.6
8.917.7
Hilite
23.6AUDI
9M/20159M/2014
10
Pumps and Engine ComponentsSales by quarter (€m)
92.580.6
Q1
98.282.6 85.6
Q4
84.8
Q3
93.3
Q2
20152014
Sales (€m)
9.09.0
Q1
9.3
7.5 7.4
Q3
9.3
Q2 Q4
7.8
20152014
Adj. EBITDA (€m) Adj. EBITDA by quarter (€m)1
+1.1%
9M/2015
26.0
9.1%
9M/2014
25.7
10.3%
9M/2014
284.0
14.2%
9M/2015
248.7
Not timely executed efficiency measures in the Powder Metallurgy impact segment result
1 Readjustment of Q2 / Q3 2014 figures due to non-recurring serial start-up costs
9.3% 10.9% 10.8% 8.7%10.0% 9.1% 8.3%
11
Status quo implementation of efficiency measures in the Powder Metallurgy
Scope of efficiency measures – a tripod
Organisational measures (shopfloor management, etc.)
Technological measures (material changes, automation)
Capacity measures (investment programme 2014-2016)
Capacitymeasures
Efficiencyprogramme
Organisationalmeasures
Technological measures
• Intensified shop floor management based on extended set of key figures
• Revised management cockpit with increased transparency
• Daily cost control of external services and suppliers
• Press tool optimisation in order to achieve higher process stability
• Modification of material for more precise shape
• Automation of crack detection and visual inspection
• Overhauling of presses
• Temporarily outsourcing of two products in order to increase lot sizes
• Investment programme 2014-2016 with capacity expansion by 4 additional presses
1
2
3
1
2
3
12
Large investments in Powder Metallurgy (2014 – 2016)
Specification Commissioningdate Effect Status
Building expansion Q4/2014 Capacity
Sizing press Q1/2015 Capacity
Powder press Q1/2015 Capacity
Machining cell Q2/2015 Capacity / Ratio
Double disc grinding machine Q3/2015 Capacity / Ratio
Palletizing systems Q3/2015 Ratio
High-speed sizing press Q1/2016 Capacity
Powder Press Q1/2016 Capacity
Capacity bottlenecks should be eliminated until the end of Q1/2016
13
Investments at a glance
14
Brake DiscsSales by quarter (€m)
Q4
23.8
Q3
23.8
Q2
24.924.7
Q1
24.524.2 25.1
Sales (€m)
2.11.7
2.7
Q1
2.7
Q4Q2
3.02.5
2.2
Q3
Adj. EBITDA (€m) Adj. EBITDA by quarter (€m)
20142015
20142015
8.8%
6.4
7.8
10.5%
9M/2014 9M/2015
+21.8%
74.4
9M/20159M/2014
72.7
+2.4%
EBITDA-margin on a record high of 10.5 per cent
7.2% 10.1% 9.1% 11.2%8.7% 11.9% 10,8%
15
Net Working Capital Ratio
11.7%
8.7%
Q4/2013 Q1/2014
11.3%
Q2/2014
9.7%
Q3/2014
11.3%
Q4/2014
7.2%
10.4%10.5%
Q3/2015Q2/2015Q1/2015Q2/2013 Q3/2013
16.1%15.6%
Average working capital ratio in the first nine months 2015 meets sustainable 11.0 per cent target
Medium-termtarget:11%
16
Capex – Depreciation
14.714.7
Capex by quarter (€m)
10.1
Q3
6.7
Q2
8.18.8
Q1
6.2
9.2
5.0
-7.5%-32.6%
Q4
-25.9%
20152014
Capex (€m)
+24.0%+24.9%
Q4
4.9
Q3
4.0
6.04.8
Q2
5.54.5
Q1
5.0
+23.9%
Depreciation (€m) Depreciation by quarter (€m)
20142015
19.3
5.4%
9M/2014
24.7
7.7%
-21.9%
9M/2015
+24.3%
4.6%
9M/2014
13.3
4.1%
16.6
9M/2015
Capex ratio of around 7 per cent in 2015 within reach
3.8% 4.2% 4.4% 4.5%4.3%
8.8% 8.2% 6.2% 9.3%6.2% 6.6%
4.5%
4.2%
5.1%
17
Cash Flow
5.(€m) Q3/2015 Q3/2014 9M/2015 9M/2014
Cash flow from operating activities 4.8 -0.5 18.0 11.6
Cash flow from investing activities- tangible and intangible assets -5.0 -6.8 -21.6 -27.5
Operating free cash flow -0.1 -7.3 -3.6 -15.9
Cash flow from investing activities- financial assets 0.0 0.0 -8.91) 0.0
Total free cash flow -0.1 -7.3 -12.5 -15.9
Other (esp. proceeds from capital increase / dividend payment)
-0.1 -0.2 17.8 -6.0
Change in net debt -0.2 -7.5 5.3 -21.9
Net debt influenced by internationalisation of Brake Discs business and capital increase
1) Payment into the Joint Venture’s share capital (SHW Longji Brake Discs (LongKou))
18
Sound financial profile
Balance sheet as of 30 September, 2015 (€m) Balance sheet as of 31 December, 2014 (€m)
Other short termliabilities(35.8%)
Pensions1)
(13.4%)
Currentassets
(43.0%)
Non-currentassets
(56.9%)
Equity(40.3%)
37.9
209.5m
Equity & Liabilites
75.0
14.67.3
28.1
84.5
Assets
0.3
119.0
90.2
Cash(0.1%)
Other long term liabilitie(3.5%)
Bank debt (7.0%)2)
Sound balance sheet safeguards financial and strategic headroom
1) Increased pension provision due to interest rate decline (IAS 19)2) Net financial debt amounts to € 14.4m in 2014
Equity & Liabilites
76.4
10.814.7
27.7
113.3
Assets
1.7
136.9
104.2Currentassets
(42.9%)
Non-currentassets
(56.4%)
Cash(0.7%)
Equity(46.6%)
Pensions(11.4%)
Other long term liabilities(6.1%)Bank debt (4.4%)1)
Other short termliabilities(31.4%)
242.8m
1) Net financial debt declined by € 5.3 million to € 9.0 million
19
Revised guidance for 2015 confirmed
2015 (old) 2015 (revised)
Sales
thereof P&ECthereof Brake Discs
approx. € 470 m
approx. € 370 mapprox. € 100 m
approx. € 470 m
approx. € 370 mapprox. € 100 m
Adjusted EBITDA € 46 to € 50 m € 42 to € 46 m*
Working Capital Ratio sustainable 11 % of sales sustainable 11 % of sales
Sustainable margin improvement from 2016 onwards
20
Focus on profitability
Areas of sustainable earnings improvements
• Release of temporary workers from Q4 2015 onwards• Sufficient capacity and flexibility for bigger, economical batch sizes in Powder Metallurgy• Less freight services and logistics costs
• Close integration of business critical departments (e.g. procurement, sales, R&D) within the production network of Aalen-Wasseralfingen and Bad Schussenried
• Reorganisation of the purchasing and supplier management• Centralising of certain functions in one location
• Final decision about the site location and set-up in 2016 for realising the start of operations in 2017
• Utilizing further growth potential in the areas of primary transmission oil pumps, variable water pumps and electrification
• Further ramp-up of lightweight brake discs• Improved product mix with composite brake discs amounting to 34 per cent of sales in 2016• Access to new vehicle classes through process optimisation
Mid-term planning will be released at the beginning of December 2015
Operational Excellence
Organisation/Management
Procurement & Supplier Excellence
Eastern European Expansion
BusinessDevelopment
Brake Discs
21
Financial Calendar 2015
Dates Events
Beginning of December Business Update mid-term planningInvestor and Analyst Teleconference
Beginning of December Management Roadshow – Kepler CheuvreuxFrankfurt / London
22
Michael SchicklingHead of Investor Relations & Corporate Communications
Telephone: +49 (0) 7361 502-462E-Mail: [email protected]
Anja K. SiehlerSenior Manager Investor Relations & Corporate Communications
Telephone: +49 (0) 7361 502-469E-Mail: [email protected]
Contact Investor Relations
23
DisclaimerNo 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 orbuy, 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 orinvestment 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 benoted that financial information relating to the Company contained in this document has not been audited and in some cases is based on management informationand 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. Figuresrounded 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, theactual figures, rather than the commercially rounded figures, were used. Accordingly, in some cases, the percentages provided in the text may deviate frompercentages 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 andassumptions 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 orotherwise, except as otherwise required by applicable laws and regulations. You should not place undue reliance on forward-looking statements, which speak asonly of the date of this presentation. Statements contained in this presentation regarding past trends or events should not be taken as a representation that suchtrends or events will continue in the future.