Magna International Inc. · TSX:MG
Magna International — Q2 2018 Earnings Presentation
36 slides from Magna International's earnings presentation, Aug 9, 2018
Slide 1: Q2 2018 Results Conference Call
August 8, 2018 CONFERENCE CALL Q2 2018 Results 1
Slide 2: Today's Participants
Today’s Participants • Don Walker Chief Executive Officer • Vince Galifi Chief Financial Officer • Swamy Kotagiri Chief Technology Officer • Louis Tonelli Vice President, Investor Relations 2
Slide 3: Forward Looking Statements
Forward Looking Statements 3 We disclose "forward - looking information" or "forward - looking statements" (collectively, "forward - looking statements") to provid e information about management's current expectations and plans. Such forward - looking statements may not be appropriate for othe r pur
Slide 4: Reminders
Reminders • All amounts are in U.S. Dollars (unless otherwise noted) • Today’s discussion excludes the impact of other expense, net • Results for 2017 have been restated to reflect our adoption of a new revenue accounting standard related to tooling and pre - production engineering 4
Slide 5: Q2 Highlights
Q2 Highlights • Record second quarter results • Agreement with BJEV to engineer and build electric vehicles in China • Announcement to acquire European - based lighting supplier OLSA • Lyft partnership update • Estimated impact of tariffs 5
Slide 6: Second quarter records and shareholder returns
Q2 2018 • Second quarter records for sales, Adjusted EBIT, Adjusted Diluted EPS • Returned $844 million to shareholders in the quarter and approximately $1.1 billion YTD • Body Exteriors & Structures and Seating performed in - line with our expectations, excluding impact of Meridian fire • Complete
Slide 7: Beijing Electric Vehicle Co. Ltd. (BJEV)
Beijing Electric Vehicle Co. Ltd. (BJEV) • Forming two joint ventures with Beijing Electric Vehicle Co. (BJEV) • Magna to jointly engineer and build premium electric vehicles for customers in China with BJEV • Facility can support up to 180,000 annual vehicle capacity • JV is capable of supporting t
Slide 8: OLSA Acquisition
OLSA Acquisition • Magna signed a deal to acquire OLSA, which will expand our lighting capabilities • Pending regulatory approval and other closing conditions, deal is expected to be finalized before end of 2018 • OLSA supplies automakers with advanced exterior lighting products • Deal expands footp
Slide 9: Lyft Partnership – Update
Lyft Partnership – Update • Equity investment closed in Q2 • Very pleased with cooperation and communication from Lyft • Actively recruiting on the west coast of U.S. • Will provide future updates 9
Slide 10: Tariffs
Tariffs • Beginning Q3, expect our earnings to be impacted by Section 232 and 301 tariffs • Estimated annual exposure ~$60 million, with ~$30 million impact in the second half of 2018 10
Slide 11: Financial Highlights
Q2 2018 Financial Highlights • Q2 records for: – Consolidated sales – up 12% – Consolidated Adjusted EBIT – up 6% – Net income attributable to Magna – up 7% – Adjusted Diluted EPS – up 15% • Returned $844M to shareholders • Outlook reduced for sales, equity income, and net income 11
Slide 12: Consolidated Sales Performance
Q2 2018 Consolidated Sales Performance $ BILLIONS Q2 2017 442 305 57 411 1,140 ($ Millions ) B/(W) 9.1 4.6 3.2 1.4 1.3 10.3 Q2 2017 Body Exteriors & Structures Power & Vision Seating Complete Vehicles Q2 2018 + 12 % RECORD 12
Slide 13: Consolidated Sales Performance
Q2 2018 Consolidated Sales Performance $ BILLIONS Key Factors: • Launch of new programs (+) • Foreign exchange translation (+) Q2 2017 Q2 2018 + 12 % 9.1 10.3 13
Slide 14: Adjusted EBIT and Equity Income
Q2 2018 Adjusted EBIT and Equity Income - 50 BP ADJUSTED EBIT MARGIN % 8.3 7.8 KEY FACTORS + 33 % EQUITY INCOME ($ Millions) 54 72 Q2 2017 Q2 2018 14 + 6 % ADJUSTED EBIT ($ Millions) 758 803 • Complete Vehicles ( - ) • FX translation of net deferred tax assets ( - ) • Seating ( - ) • Body Exteri
Slide 15: Financial Highlights
Q2 2018 Financial Highlights Q2 2017 Q2 2018 ADJUSTED DILUTED EPS + $0.22 $1.45 $ 1.67 15 Q2 2017 Q2 2018 EFFECTIVE TAX RATE - 140 BP 24.5% 23.1% Q2 2017 Q2 2018 ADJUSTED NET INCOME ATTRIBUTABLE TO MAGNA + $39 Million $551M $590M
Slide 16: Segment Sales: Body Exteriors & Structures
Q2 2018 Segment Sales BODY EXTERIORS & STRUCTURES $ BILLIONS • New program launches (+) • Foreign currency translation (+) • Change in production volumes on other programs ( - ) • Net customer price concessions ( - ) Significant New Launches: • Chevrolet Traverse and Buick Enclave • GMC Terrain and
Slide 17: Segment Adjusted EBIT Margin: Body Exteriors & Structures
Q2 2018 Segment Adjusted EBIT Margin % BODY EXTERIORS & STRUCTURES • Productivity and efficiency improvements (+) • Higher foreign exchange gains (+) • Higher scrap steel recoveries (+) • Higher launch costs ( - ) • Lost production due to fire at a Tier 1 supplier in North America ( - ) Q2 2017 Q2 2
Slide 18: Segment Sales: Power & Vision
Q2 2018 Segment Sales POWER & VISION $ BILLIONS • New program launches (+) • Foreign currency translation (+) • Impact of divestiture ( - ) • Net customer price concessions ( - ) Significant New Launches: • Audi A6 • Chevrolet Traverse and Buick Enclave • Jeep Wrangler Q2 2017 Q2 2018 + 11 % 2.9 3.2
Slide 19: Segment Adjusted EBIT Margin: Power & Vision
Q2 2018 Segment Adjusted EBIT Margin % POWER & VISION • Higher foreign exchange gains (+) • Higher equity income (+) • Spending associated with electrification and autonomy ( - ) • Reduction in an indemnity receivable ( - ) • Warranty costs ( - ) Q2 2017 Q2 2018 + 20 BP 9.2% 9.4% 19
Slide 20: Segment Sales: Seating
Q2 2018 Segment Sales SEATING $ BILLIONS • New program launches (+) • Foreign currency translation (+) • End of production on certain programs ( - ) • Change in production volumes on other programs ( - ) • Impact of divestiture ( - ) • Net customer price concessions ( - ) Significant New Launches: •
Slide 21: Segment Adjusted EBIT Margin: Seating
Q2 2018 Segment Adjusted EBIT Margin % SEATING 21 Q2 2017 Q2 2018 - 50 BP 8.6% 8.1% • New facility costs ( - ) • Higher equity income (+) • Higher foreign exchange gains (+)
Slide 22: Complete Vehicles
Q2 2018 Complete Vehicles 22 + 57 % ASSEMBLY VOLUMES (Thousands of units) 21.3 33.5 + 47 % SALES ($ Millions ) 869 1,280 - 14 ADJUSTED EBIT ($ Millions) 15 1 ADJUSTED EBIT MARGIN % 1.7 0.1 Q2 2017 Q2 2018
Slide 23: Cash Flow
Q2 2018 Cash Flow $ MILLIONS Cash from Operations Net Income + Non - Cash Items $ 939 Changes in Non - Cash Operating Assets & Liabilities $ (472) $ 467 Investment Activities Fixed Assets $ 379 Investments, Other Assets & Intangibles $ 103 Lyft Investment $ 200 $ 682 Proceeds from Disposition and Ot
Slide 24: Return of Capital to Shareholders
Return of Capital to Shareholders Common Shares Repurchased in Q2 11.7M $ to Repurchase Shares in Q2 $ 729M Dividends Paid $ 115M Total Q2 Return to Shareholders $ 844M Common Shares Repurchased to date in Q3 1 4.2M $ to Repurchase Shares in Q 3 1 $ ~250M 24 1 As of August 3, 2018
Slide 25: 2018 Outlook
2018 Outlook August May Vehicle Production: – North America 17.2M 17.3M – Europe 22.6M 22.6M Foreign Exchange Rates: – U.S. – Cdn 0.771 0.780 – U.S. – Euro 1.185 1.220 25
Slide 26: 2018 Outlook
2018 Outlook 1 $ BILLIONS UNLESS OTHERWISE NOTED U.S. GAAP August May Sales: • Body Exteriors & Structures $17.1 - $17.9 $17.3 - $18.1 • Power & Vision $12.2 - $12.8 $12.3 - $12.9 • Seating Systems $5.5 - $5.9 $5.5 - $5.9 • Complete Vehicles $6.1 - $6.5 $6.4 - $6.8 Total Sales $40.3 - $42.5 $40.9 -
Slide 27: 2018 Segment Adjusted EBIT Margin Outlook
2018 Segment Adjusted EBIT Margin % OUTLOOK vs PRIOR FORECAST 2017 Prior 2018 Current 2018 27 BODY EXTERIORS & STRUCTURES 8.1% 8.1 - 8.5% 8.1 - 8.5% SEATING SYSTEMS 8.3% 7.5 - 8.0% 7.5 - 8.0% POWER & VISION 10.2% 10.0 - 10.5 % 9.5 - 10.0% COMPLETE VEHICLES 1.9% 1.5 - 2.0% 1.0 - 1.5%
Slide 28: Revised 2020 Outlook
Revised 2020 Outlook 1,2 CONSOLIDATED UPDATED PREVIOUS Equity Income $330M - $380M $400M - $450M EBIT Margin % 8.3% - 8.7% 8.5% - 8.9% 28 1 Based on new revenue accounting standard for tooling and pre - production engineering 2 We have updated our 2020 outlook only for our transmission joint venture
Slide 29: Summary
Summary 29 • Second quarter records – Sales – Adjusted EBIT – Adjusted Net Income attributable to Magna – Adjusted Diluted EPS • Returned $844M to shareholders • Reduced outlook for sales, equity income and net income for 2018 • Reduced 2020 outlook for equity income and Adjusted EBIT margin (Consol
Slide 30: Appendix
August 8, 2018 APPENDIX Q2 2018 Conference Call 30
Slide 31: Segment Performance vs Market
Segment Performance vs Market Q2, 2018 vs Q2, 2017 Reported Organic 1 Unweighted Outperformance Weighted Outperformance Body Exteriors & Structures 11% 8% 0% 5% Power & Vision 11% 6% (2%) 3% Seating 4% 5% (3%) 2% Complete Vehicles 47% 36% 28% 33% TOTAL SALES 12% 9% 1% 6% Unweighted Production Growth
Slide 32: Reconciliation of Reported Results
Q2 2018 Reconciliation of Reported Results EXCLUDING OTHER EXPENSE (INCOME), NET $ MILLIONS – EXCEPT PER SHARE FIGURES Reported Other Exp./Inc. Excl. Other Exp./Inc. Income Before Income Taxes $ 819 $ 39 $ 780 % of Sales 8.0% 7.6% Income Taxes $ 183 $ 3 $ 180 % of Pretax 22.3% 23.1% Income Attributa
Slide 33: Q2 2017 Reconciliation of Reported Results
Q2 2017 Reconciliation of Reported Results EXCLUDING OTHER EXPENSE (INCOME), NET $ MILLIONS – EXCEPT PER SHARE FIGURES Reported Restructuring Excl. Other Exp./Inc. Income Before Income Taxes $ 744 $ (3) $ 747 % of Sales 8.1% 8.2% Income Taxes $ 183 $ - $ 183 % of Pretax 24.6% 24.5% Income Attributab
Slide 34: Segment Impact on Adjusted EBIT
Segment Impact on Adjusted EBIT % of Sales Q2 2018 vs Q2 2017 $ MILLIONS Sales Adjusted EBIT Adjusted EBIT as a Percentage of Sales Second Quarter of 2017 $ 9,140 $ 758 8.3% Increase (Decrease) related to: Body Exteriors & Structures $ 442 $ 48 0.1% Power & Vision $ 305 $ 33 0.1% Seating Systems $ 5
Slide 35: Geographic Sales
Geographic Sales Q2 2018 vs Q2 2017 35 + 3 % NORTH AMERICA ($Billions) 5.1 5.2 + 28 % EUROPE ($Billions) 3.4 4.3 + 7 % ASIA ($Millions ) 654 697 + 5 % REST OF WORLD ($Millions ) 132 139 Q2 2017 Q2 2018
Slide 36: Adjusted Debt to Adjusted EBITDA Calculation
Adjusted Debt to Adjusted EBITDA Calculation $ MILLIONS Q2 2018 Unadjusted LTM EBITDA $ 4,457 Other Income (Expense) LTM $ 6 Other $ 391 Adjusted EBITDA $ 4,854 Debt per Balance Sheet $ 4,358 Operating Lease Adjustment $ 1,729 Other $ 267 Adjusted Debt $ 6,354 Adjusted Debt / Adjusted EBITDA 1.31x 3