Axalta Coating Systems Ltd. · NYSE:AXTA

Axalta Coating Systems — Q2 2017 Earnings Presentation

56 slides from Axalta Coating Systems's earnings presentation, Aug 24, 2017

  1. Slide 1: Axalta Coating Systems Investor Presentation Second Quarter 2017

    Axalta Coating Systems Ltd. Investor Presentation Second Quarter 2017 Exhibit 99.1

  2. Slide 2: Legal Notices

    PROPRIETARYAXALTA COATING SYSTEMS 2 Legal Notices Forward-Looking Statements This presentation and the oral remarks made in connection herewith may contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including those relating to 2017 f

  3. Slide 3: Celebrating 150+ Years Of Coatings Excellence

    PROPRIETARYAXALTA COATING SYSTEMS 2014-2017  November 2014 IPO (NYSE: AXTA)  Expand capacity in China, Germany, Mexico and Brazil  Build Asia-Pacific Technology Center in Shanghai  Acquire Valspar’s Wood business (N.A.), Dura Coat (U.S.), Spencer (U.K.) & other smaller transactions  Announce Gl

  4. Slide 4: Corporate Transformation: Carve-out & The First Two Years

    PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Corporate Transformation: Carve-out & The First Two Years  Completed separation  New leadership team  Initial growth strategy  Incentives realigned  Global re-branding N o n -Core D iv is io n The Carve Out Run & Maintain Regional Structure Capital Con

  5. Slide 5: Post Carve-Out: Ongoing Transformation

    PROPRIETARYAXALTA COATING SYSTEMS Post Carve-Out: Ongoing Transformation O perati n g T ransformat io n Focused on Profitable Growth The Axalta Way First M&A Deals Pushing Through Roadblocks New Operations Leadership 2015 - 2017 5 Carlyle Sell-down / New Ownership Base Board Transformation Leadershi

  6. Slide 6: Axalta – A Global Leader In Coatings

    PROPRIETARYAXALTA COATING SYSTEMS Refinish $1.7 B (41%) Industrial $0.7 B (18%) Body Shops Light Vehicle $1.3 B (33%) CV $0.4 B (8%) Performance Coatings General Industrial, Electrical Insulation, Architectural Transportation Coatings Adjusted EBITDA1,2 - $554 M (23% Margin) Adjusted EBITDA1,2 - $35

  7. Slide 7: Axalta's Future State: A Global High-Performing Coatings Leader

    PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Future State: A Global High-Performing Coatings Leader Consistent Growth Margin Expansion Effective Capital Allocation Enhanced Shareholder Returns Axalta’s Vision To maximize our customers’ productivity and product functionality by offering them innovative

  8. Slide 8: Grow The Business, Refine The Cost Structure

    PROPRIETARYAXALTA COATING SYSTEMS Grow The Business, Refine The Cost Structure  Growth Supported by Clear Strategies, Greater Resources  Market Share Gains in Core Markets From Innovation, Service Execution  Emerging Markets Focus for Long Term Opportunity  Globalizing Existing Products to Reach

  9. Slide 9: Cost Initiatives To Enhance Productivity & Efficiency

    PROPRIETARYAXALTA COATING SYSTEMS Cost Initiatives To Enhance Productivity & Efficiency Fit-For-Growth (Europe): $100 million targeted savings • Right-size staffing levels + wage & benefit restructuring • Rationalize manufacturing and logistics • Invest in automation Initial carve-out actions: • Res

  10. Slide 10: Key Goals For 2017

    PROPRIETARYAXALTA COATING SYSTEMS Key Goals For 2017 Outgrow our End-markets Stated Objective Expected Results Drive Excellent Customer Service & Innovation Maintain Active Operating Cost Discipline Execute on Structural Savings Disciplined Capital Allocation Continue FCF & Financial Discipline  Ne

  11. Slide 11: Axalta Operates Fundamentally Strong Businesses

    PROPRIETARYAXALTA COATING SYSTEMS Axalta Operates Fundamentally Strong Businesses Global Market Leadership Positions Significant Competitive Advantages A Service-Led Business Model Structurally Attractive Global End Markets Highly Variable Cost Structure & Low Capital Intensity 11

  12. Slide 12: Global Market Leadership Positions

    PROPRIETARYAXALTA COATING SYSTEMS Global Market Leadership Positions Axalta’s Global Scale Enables Market Leadership _______________________________________________ Information as of FY 2016, all sales data refers to Net Sales 1. Mexico is included in Latin America 2. Includes 12 JV facilities.  50

  13. Slide 13: Global Market Leadership Positions

    PROPRIETARYAXALTA COATING SYSTEMS Global Market Leadership Positions Peer 1 Axalta Peer 2 Peer 3 Other ~90% of Sales from Markets Where Axalta Has #1 or #2 Global Share Axalta Peer 1 Peer 2 Peer 3 Other Performance Coatings: Refinish Transportation Coatings: Light Vehicle #1 ________________________

  14. Slide 14: Significant Competitive Advantages

    PROPRIETARYAXALTA COATING SYSTEMS Significant Competitive Advantages Differentiated Franchise with Global Scale and Strong Competitive Advantages  4+ million color variations  Hundreds of formulations in automotive & industrial  Deep coatings heritage since 1866  Broad global brand portfolio  1

  15. Slide 15: Industry Trends

    PROPRIETARYAXALTA COATING SYSTEMS Industry Trends Axalta Technologies OEM Vehicle Light-Weighting  Broad substrate coating applicability for next generation materials Growth in Multi-Shop Operators (MSO)  Axalta’s waterborne technology improves MSO shop productivity and our national coverage enabl

  16. Slide 16: A Service-Led Business Model

    PROPRIETARYAXALTA COATING SYSTEMS A Service-Led Business Model Critical Functionality at a Relatively Low Cost 1 Compelling Value Proposition Where Product Cost is Not the Main Driver Light & Commercial Vehicle: <1% of a new vehicle’s cost Industrial: Critical to function, durability, safety & compl

  17. Slide 17: Structurally Attractive Global End-Markets

    PROPRIETARYAXALTA COATING SYSTEMS Structurally Attractive Global End-Markets Strong Coatings Growth Outlook Long Term Alignment With Global Growth  Refinish: Car parc, miles driven, and collision rates  Light Vehicle: Emerging economies and middle classes; ongoing consumer strength in developed ma

  18. Slide 18: Highly Variable Cost Structure & Low Capital Intensity

    PROPRIETARYAXALTA COATING SYSTEMS Highly Variable Cost Structure & Low Capital Intensity  ~45-55% of COGS come from variable raw material inputs  Utilize temporary labor to enable wage structure flexibility  Toggle other costs as needed in a downturn, including both variable and semi-fixed Low Ca

  19. Slide 19: Axalta's Evolution Is Grounded In Fundamental Goals

    PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Evolution Is Grounded In Fundamental Goals Focus on operational excellence and foster a culture of accountability Axalta’s Strategy Grow in targeted industrial coatings segments via organic growth and selective acquisitions Move into attractive adjacencies

  20. Slide 20: Strategy: Grow Core Products & Markets

    PROPRIETARYAXALTA COATING SYSTEMS Axalta’s Strategy: Grow Core Products & Markets Refinish ____________________ Source: Axalta estimates Strong Momentum Driven by Customer-Centric Approach Axalta MSO Market Share 2013 Today Light Vehicle  Axalta is gaining share by partnering with market winners 

  21. Slide 21: Strategy: Accelerate Growth In Emerging Markets

    PROPRIETARYAXALTA COATING SYSTEMS Emerging Markets, 29% Axalta’s Strategy: Accelerate Growth In Emerging Markets China Example Light Vehicles, Per 1,000 People China Car Parc (thousands) 743 263 230 129 61 19 United States Central & Eastern Europe Mexico Brazil China India Damaged Vehicles Per 1M km

  22. Slide 22: Strategy: Targeted Industrial Coatings Expansion

    PROPRIETARYAXALTA COATING SYSTEMS Architectural Axalta’s Strategy: Targeted Industrial Coatings Expansion Growth from Leveraging Our Product Portfolio in Underserved Markets  Strong product portfolio in wood, powder, liquid, and e-coat  Implemented global end-market business structure to capitaliz

  23. Slide 23: Strategy: Focus On Operating Excellence

    PROPRIETARYAXALTA COATING SYSTEMS  Ongoing productivity – The Axalta Way  Operating system design and rollout  R&D / Innovation enablers  Salesforce refinement & investment  Balanced manufacturing footprint  Enhanced IT tools  Complexity reduction Leadership & Culture  Tone set by senior lea

  24. Slide 24: Financial Overview

    Financial Overview

  25. Slide 25: Axalta Today: Shifting Gears To Larger Projects

    PROPRIETARYAXALTA COATING SYSTEMS Axalta Today: Shifting Gears To Larger Projects Underlying Market Growth Core Market Growth Operational Improvements Tuck-in Organic Levers For Growth Inorganic / M&AMargin Levers Growth + Margins + Allocation Focus = Best-in-class Shareholder Returns 25 Optimized C

  26. Slide 26: Q2 Consolidated Results

    AXALTA COATING SYSTEMS Q2 Consolidated Results Commentary 26 Net sales led by acquisition growth  Net sales pressured by lower volumes in Latin America Refinish and EMEA Light Vehicle, partly offset by solid growth in Industrial and Commercial Vehicle end- markets  Pricing concessions in Light Veh

  27. Slide 27: The Axalta Way: Driving Towards World Class Productivity

    PROPRIETARYAXALTA COATING SYSTEMS Cumulative Productivity Savings ($ millions) The Axalta Way: “A focused approach to doing business that drives profitability by improving our efficiency, productivity, and growth opportunities every day, wherever we do business” 2017E20162015 2018E2014 ~$150 $89 ~$2

  28. Slide 28: Prioritization Of Capital Spending; Focus On High IRR Capex

    PROPRIETARYAXALTA COATING SYSTEMS  Major Capex projects completed in 2016  Asia Pacific Technology Center  Argentina – New Manufacturing Site  Major Capex projects planned for 2017  Global Innovation Center  Jiading – WB Expansion  Savli – OEM Manufacturing & Laboratory Capital Expenditures C

  29. Slide 29: Effective Capital Allocation Should Drive Improved Returns

    PROPRIETARYAXALTA COATING SYSTEMS Notes: 1) ROIC = Net Operating Profit After Tax (NOPAT) / (Total Debt + Preferred Stock + Minority Interest + Equity); 2) AXTA total capital excludes identified intangible assets; 3) Data as of LTM Q4 2016  Axalta’s ROIC is penalized by the February 2013 LBO and re

  30. Slide 30: Axalta Today: Focus On Capital Allocation

    PROPRIETARYAXALTA COATING SYSTEMS Debt Reduction Organic Investment Capex / R&D M & A Dividends - No current dividend Share Repurchases - Offset dilution - Opportunistic buys Leverage in excess of target and no immediate investment? Investment opportunity that exceeds hurdle rate? Share price greate

  31. Slide 31: Debt and Liquidity Summary

    AXALTA COATING SYSTEMS Debt and Liquidity Summary Capitalization 31 Comments  Upsized and modified USD Term Loan to finance the acquisition of Valspar’s North American Industrial Wood Coatings business and Spencer Coatings Group and to take advantage of favorable market conditions  Reduced LIBOR s

  32. Slide 32: Selected Acquisitions

    AXALTA COATING SYSTEMS 32 Selected Acquisitions GeographyEnd-Market Company OverviewTarget Leading local producer of refinish coatings in Malaysia and Indonesia Leading North America supplier of automotive interior coatings; strong position in North American OEM’s Leading independent supplier of coi

  33. Slide 33: Full Year 2017 Guidance

    AXALTA COATING SYSTEMS Full Year 2017 Guidance*  Net sales growth includes incremental M&A contribution of 6-7% from completed acquisitions  Headwinds to margins from input cost inflation, certain pricing and customer mix changes, and foreign currency  Tax rate, as adjusted, benefits from full ye

  34. Slide 34: Performance Coatings: Refinish

    Performance Coatings: Refinish

  35. Slide 35: Axalta Global Refinish Dynamics

    PROPRIETARYAXALTA COATING SYSTEMS Projected Industry Sales ($ in billions) Asia Pacific EMEA North America 4.7% 3.4% 1.5% 2.3% ’16–‘20E CAGR ___________________________________ Source: Orr & Boss; Axalta estimates Latin America 2.7% Axalta Global Refinish Dynamics  Strong heritage through Herberts

  36. Slide 36: Axalta Has A Very Strong Position In Refinish Globally

    PROPRIETARYAXALTA COATING SYSTEMS Global Share Position Key Market Trends Refinish Industry Sales: ~$7.7 billion  Drivers include size of car parc, miles driven, and accident rates  Industry dynamics favor stable competition in most markets  Focus on innovation and service to increase body shop p

  37. Slide 37: Refinish Products: The Paint Layers & Process

    PROPRIETARYAXALTA COATING SYSTEMS Refinish Products: The Paint Layers & Process Clearcoat: Protects basecoat from the elements, gives automobile its lustrous look Basecoat: Creates automobile’s color and aesthetics Primer Surfacer: Protects automobile from visible and UV light, improves surface smoo

  38. Slide 38: Performance Coatings: Industrial Coatings

    Performance Coatings: Industrial Coatings

  39. Slide 39: The Overall Industrial Coatings Market is Expected to Grow

    PROPRIETARYAXALTA COATING SYSTEMS ’16-’20E CAGR($ in billions) Asia Pacific EMEA North America 6.7% 5.2% 3.2% 3.2% 5.4% _____________________________ Source: Orr & Boss; Axalta estimates Latin America The Overall Industrial Coatings Market is Expected to Grow 39 The Industrial Coatings Market $3.3 $

  40. Slide 40: Industrial Coatings Market Segments and Drivers

    PROPRIETARYAXALTA COATING SYSTEMS General Industrial $15.0 Electrical Insulation $2.0 Architectual $1.5 ACE $1.5 Coil $4.5 Oil & Gas $3.5 Product Examples Market Drivers General Industrial  Metal furniture  Appliances  Shelving/ racking  Electrical boxes  GDP  Industrial production Electrical

  41. Slide 41: Industrial Coatings Drivers

    PROPRIETARYAXALTA COATING SYSTEMS Industrial Coatings Drivers Volume growth driven by global GDP and Industrial Production  China drives >40% of global industrial coatings consumption  Commercial architectural market has seen ongoing recovery Coatings suppliers are consolidating  Consolidation dr

  42. Slide 42: Growth Priorities & Strategies

    PROPRIETARYAXALTA COATING SYSTEMS Growth Priorities & Strategies Agricultural, Construction & Earthmoving Equipment (ACE)  Expand approval portfolio with multiple coatings technologies  Utilize global footprint to target new business in all regions Architectural  Market our powder coatings to arc

  43. Slide 43: Transportation Coatings Overview

    Transportation Coatings Overview

  44. Slide 44: Transportation Coatings Segment Overview

    PROPRIETARYAXALTA COATING SYSTEMS Global co-lead supplier to OEMs Transportation Light Vehicle  Original Equipment Manufacturers  Plastics and composite materials  Metal coatings #1 global supplier to heavy duty truck and bus segments Commercial Vehicle  Commercial trucks  Rail  Bus  Utility

  45. Slide 45: Axalta is a leading global transportation coatings supplier

    PROPRIETARYAXALTA COATING SYSTEMS  17% global light vehicle market share with strong OEM relationships in all regions​  #1 player globally in heavy duty truck and bus  Extensive portfolio of technologies fit for purpose in each market​  Showing results to date through business wins and global la

  46. Slide 46: Structurally Growing Markets

    PROPRIETARYAXALTA COATING SYSTEMS Market Growth: Light Vehicle Market Growth: Commercial Vehicle _____________________________ Source: Orr & Boss; Axalta estimates Asia Pacific Latin America EMEA North America 3.9% 3.1% 2.3% 1.5% 2.9% ($ in billions) ’16–‘20E CAGR ($ in millions) Asia Pacific EMEA N

  47. Slide 47: Key Market Trends

    PROPRIETARYAXALTA COATING SYSTEMS  Volatile organic compounds (VOCs)  Toxic substances  Coatings for new lightweight materials to improve fuel economy Government Regulations Emerging Markets Industry Globalization Demand for Productivity Color and Protection  Near-term uncertainty (Brazil, Russi

  48. Slide 48: Transforming A Global Coatings Supplier

    PROPRIETARYAXALTA COATING SYSTEMS Global Share Axalta 31%  Axalta is a global leader in transportation coatings  Globalizing and harmonizing our coatings technology  Bringing brighter colors and more effects to color design  Aligning global R&D and product management around voice-of-customer  W

  49. Slide 49: Vision Is Above-Market Growth

    PROPRIETARYAXALTA COATING SYSTEMS  Gain share with existing customers  Grow underserved customers and regions  Align product technology to evolving customer and market needs  Increase content per vehicle  Leverage “what good looks like” into new regions, customers, and markets Strategies Key Ta

  50. Slide 50: Segmenting Our Markets

    PROPRIETARYAXALTA COATING SYSTEMS Light Vehicle HDT Specialty OEM Bus Rail General Aviation Body Builders & Trailers Estimated Market Size $7,800M $600M $550M $200M $600M $45M $400M Product Examples Passenger cars Pick-ups / SUVs  Light commercial vehicles Component parts EM class 4-8 truck man

  51. Slide 51: Segment growth strategies

    PROPRIETARYAXALTA COATING SYSTEMS  China expansion to mainstream and economy segments  Leverage high speed rail success  SprayFlex FSTM interior floor coatings  Leverage global accounts  Gain share in tier part suppliers  China growth via Kinlita JV  China HDT volume is three times NA  Lever

  52. Slide 52: The OEM Paint Process

    PROPRIETARYAXALTA COATING SYSTEMS Light Vehicle Coatings delivered to OEM E-Coat applied after pre-treat Primer, Basecoat & Clearcoat applied Quality inspections between layers 52 The OEM Paint Process

  53. Slide 53: Appendix

    APPENDIX

  54. Slide 54: Adjusted EBITDA Reconciliation

    AXALTA COATING SYSTEMS Adjusted EBITDA Reconciliation Note: Numbers might not foot due to rounding. 54 ($ in millions) FY 2016 Q1 2016 Q2 2016 Q1 2017 Q2 2017 LTM 6/30/2017 Net Income (loss) $45 $33 $52 $66 (19) $7 Interest Expense, net 178 50 48 36 36 152 Provision for Income Taxes 38 14 17 10 10 2

  55. Slide 55: Adjusted EBITDA Reconciliation (cont'd)

    AXALTA COATING SYSTEMS Adjusted EBITDA Reconciliation (cont’d) 55 A. During the year ended December 31, 2016 we amended our Credit Agreement and refinanced our indebtedness, resulting in losses of $88 million, and prepaid principal on our term loans, resulting in non- cash extinguishment losses of $

  56. Slide 56: Thank you!

    Thank you! Investor Contact: Chris Mecray, VP IR Christopher.Mecray@axaltacs.com 215-255-7970

Axalta Coating Systems — Q2 2017 Earnings Presentation on 6ix