Axalta Coating Systems Ltd. · NYSE:AXTA
Axalta Coating Systems — Q3 2017 Earnings Presentation
51 slides from Axalta Coating Systems's earnings presentation, Nov 6, 2017
Slide 1: Investor Presentation Third Quarter 2017
Investor Presentation Third Quarter 2017 Axalta Coating Systems Ltd. Exhibit 99.1
Slide 2: Legal Notices
2PROPRIETARY 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 financial projections, i
Slide 3: Axalta: 150+ Years Of Coatings Excellence
3PROPRIETARY 2014-2017 November 2014 IPO (NYSE: AXTA) Expand capacity in China, Germany, Mexico, Brazil, India and Argentina; upgrade multiple other facilities Build Asia-Pacific Technology Center in Shanghai and Global Innovation Center in Philadelphia, PA Acquire Valspar’s Wood business (N
Slide 4: Axalta's Ongoing Transformation
4PROPRIETARY Axalta’s Ongoing Transformation Early Transformation 2015 - 2016 Significant Progress During Period of Emerging Markets and FX Turmoil 2013 - 2014 Carve Out Completed separation New leadership team Initial growth strategy Incentives realigned Global re-branding Ongoing Transfo
Slide 5: Axalta: A Global Leader In Coatings
5PROPRIETARY Refinish $1.7 B (41%) Industrial $0.7 B (18%) Body Shops Light Vehicle $1.3 B (33%) Comml Vehicle $0.4 B (8%) Performance Coatings $2.4 Billion, 59% of Sales General Industrial, Electrical Insulation, Architectural Transportation Coatings $1.7 Billion, 41% of Sales Adjusted EBITDA1,2 -
Slide 6: Grow The Business, Refine The Cost Structure
6PROPRIETARY 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 Underserved Markets
Slide 7: Key Goals For 2017
7PROPRIETARY Key Goals For 2017 Key Objectives for Growth & Value Creation Axalta’s Vision To maximize our customers’ productivity and product functionality by offering them innovative coatings solutions and best-of-class service Outgrow our End-markets Execute on Structural Savings Maintain A
Slide 8: Selected Acquisitions
8PROPRIETARY Selected Acquisitions GeographyEnd-Market Company OverviewTarget Leading producer of refinish coatings in Malaysia and Indonesia Leading N.A. supplier of automotive interior coatings; strong position with N.A. OEM’s Leading independent supplier of coil coatings in N.A. Refinish Light Ve
Slide 9: Axalta Operates Fundamentally Strong Businesses
9PROPRIETARY Axalta Operates Fundamentally Strong Businesses 9 Global Market Leadership Positions Significant Competitive Advantages A Service-Led Business Model Structurally Attractive Global End Markets Highly Variable Cost Structure & Low Capital Intensity
Slide 10: Global Market Leadership Positions
10PROPRIETARY Global Market Leadership Positions Axalta’s Global Scale Enables Market Leadership _______________________________________________ Net Sales as of FY 2016 1. Mexico is included in Latin America 2. Includes 12 JV facilities. 49 manufacturing facilities 48 customer training sites 4
Slide 11: Global Market Leadership Positions
11PROPRIETARY 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 __________________________________ Source: O
Slide 12: Significant Competitive Advantages
12PROPRIETARY 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 Broad global brand portfolio 1,300+ technology employees $1
Slide 13: Well-Positioned to Benefit From Industry Trends
13PROPRIETARY Industry Trends Axalta Technologies Vehicle Light-Weighting Broad substrate coating solutions for next generation materials Body Shop Consolidation Axalta coatings technology and service drives customer shop productivity Significant Competitive Advantages Color Complexity OEMs li
Slide 14: A Service-Led Business Model
14PROPRIETARY Painter training Shop productivity Ongoing support 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 new vehicle’s cost Industrial: Critical to f
Slide 15: Structurally Attractive Global End-Markets
15PROPRIETARY 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 markets & middle class growth; developed markets consumer strength Commercial Vehicle: Gl
Slide 16: Highly Variable Cost Structure & Low Capital Intensity
16PROPRIETARY Highly Variable Cost Structure & Low Capital Intensity ~45-55% of COGS come from variable raw material inputs Utilize temporary labor to maximize flexibility Toggle other costs as needed in a downturn, including both variable and semi-fixed Low Capital Intensity 2016 Capex at $
Slide 17: Axalta's Evolution Is Grounded In Fundamental Goals
17PROPRIETARY 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 by leveraging our gl
Slide 18: Strategy: Grow Core Products & Markets
18PROPRIETARY Axalta’s Strategy: Grow Core Products & Markets Performance Coatings Strong Momentum Driven by Customer-Centric Approach Transportation Coatings Geography Product Breadth Customer Consolidation Premium Mainstream Economy Existing Customers Under-served Customers Global CV Markets
Slide 19: Strategy: Accelerate Growth In Emerging Markets
19PROPRIETARY Axalta’s Strategy: Accelerate Growth In Emerging Markets China Car Parc (thousands) Emerging Market Growth Coatings Market ($ Billions) Significant Emerging Markets Growth Opportunity Growth Drivers Growth of middle-classes in emerging economies Increased vehicle penetration per ca
Slide 20: Strategy: Targeted Industrial Coatings Expansion
20PROPRIETARY Architectural Axalta’s Strategy: Targeted Industrial Coatings Expansion Growth from Leveraging Our Product Portfolio in Underserved Markets Targeting mid-single digit growth CAGR Double digit growth in new customer adds 2015-17e Added significant infrastructure and investment ove
Slide 21: Strategy: Focus On Operating Excellence
21PROPRIETARY Ongoing Axalta Way productivity Axalta operating system rollout R&D / Innovation enablers Salesforce investment Manufacturing footprint balancing Enhanced IT tools Product complexity reduction Leadership & Culture Tone set by senior leaders Independence with accountab
Slide 22: Financial Overview
Financial Overview AXALTA COATING SYSTEMS
Slide 23: Axalta Today: Shifting Gears To Larger Projects
23PROPRIETARY 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 Optimized Capital Allocation & ROI
Slide 24: Q3 Consolidated Results
24PROPRIETARY Q3 Consolidated Results CommentaryFinancial Performance Net Sales Variance $1,021 Price Acq. Q3 2017FXQ3 2016 Volume Net sales growth driven by acquisitions Acquisitions provided +9.7% growth in Performance Coatings, mainly in North America and EMEA Net sales pressured by lower vol
Slide 25: The Axalta Way: Driving Towards World Class Productivity
25PROPRIETARY Cumulative Productivity Savings ($ millions) “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 ~$200 $37 Continued progress The Axalta
Slide 26: Capital Expenditures
26PROPRIETARY Capital Expenditures Capex by Year and Category ($ millions) Commentary $59 $60 $53 $50 $35 $12 $53 $39 $48 $80 $38 $75 $46 $39 $15 $109 $188 $138 $136 $130 2013 2014 2015 2016 2017E Maintenance Growth Productivity Prioritization Of Capital Spending; Focus On High IRR Capex Major Cap
Slide 27: Return on Invested Capital (ROIC)
27PROPRIETARY 13.2% 13.2% 11.6% 10.2% 10.2% PPG RPM AKZA SHW AXTA Notes: 1) ROIC = Net Operating Profit After Tax (NOPAT) / (Total Debt + Preferred Stock + Minority Interest + Equity); 2) AXTA total capital excludes identified intangible assets; 3) Data as of LTM Q3 2017 Axalta’s ROIC is penalized
Slide 28: Axalta Today: Focus On Capital Allocation
28PROPRIETARY Debt Reduction Organic Investment Capex / R&D M & A Dividends - No current dividend Share Repurchases - Offset dilution - Opportunistic buys Leverage in excess of target and no immediate investment? Investment opportunity that exceeds hurdle rate? Share price greater than fair value? F
Slide 29: Debt and Liquidity Summary
29PROPRIETARY Debt and Liquidity Summary Capitalization Comments Leverage ratio stable relative to last quarter due primarily to: Increased debt balances from Euro denominated instruments from continued strength in the Euro North American Industrial Wood acquisition financed and completed in J
Slide 30: Full Year 2017 Guidance
30PROPRIETARY Full Year 2017 Guidance Comments on Revised Guidance($ millions) Q2 Guidance Revised Net Sales, ex FX 8-9% 6-7% Tax Rate, As Adjusted 22-24% 22-24% Free Cash Flow $440-480 $360-400 Cash flow from operations less capex Interest Expense ~$150 ~$150 Adjusted EBITDA $940-970 $870-900 Net S
Slide 31: Performance Coatings: Refinish
Performance Coatings: Refinish
Slide 32: Axalta Refinish Overview
32PROPRIETARY Refinish Axalta Refinish Overview 25% Global Market Share Service Led Business Innovation Drives Leadership Global Strategy & Support
Slide 33: The Global Refinish Market Is Growing
33PROPRIETARY Projected Industry Sales ($ billions) APAC EMEA N.A. ___________________________________ Source: Orr & Boss; Axalta estimates Lat. Am. 2016 2017E 2018E 2019E 2020E $7.7 $7.9 $8.2 $8.4 $8.6 The Global Refinish Market Is Growing Key Market Trends Growing car fleet, miles driven, and ac
Slide 34: Global Share Position
34PROPRIETARY Global Share Position Refinish Industry Sales: ~$7.7 billion Axalta 25% Peer 1 19% Peer 2 11% Peer 3 11% Peer 4 4% Other 30% #1 Axalta Has A Very Strong Position In Refinish Globally ___________________________________ Source: Orr & Boss (2016); Axalta estimates Axalta Global Refinish
Slide 35: The Refinish Process At A Glance
35PROPRIETARY The Refinish Process At A Glance Consumer Body Shop Accident Call Insurance Car to Body Shop Repair Performed Vehicle Returned Prepare Surface Primer Surfacer Color Match Basecoat Clearcoat Paint Mixed Customer Satisfaction Depends on Quick, High-Quality, Cost-Effective Repairs
Slide 36: Performance Coatings: Industrial Coatings
Performance Coatings: Industrial Coatings
Slide 37: Axalta Industrial Overview
37PROPRIETARY Axalta Industrial Overview Wood Powder Coatings Coil Energy Solutions Industrial Coating Systems #2 North America Wood Coatings Supplier Global Supplier of Powder Coatings Global Supplier to the Electrical Insulation Sector Global Supplier of Industrial E-Coat POWDER LIQUID E-COAT
Slide 38: The Industrial Coatings Market
38PROPRIETARY ($ in billions) APAC EMEA N. A. _____________________________ Source: Orr & Boss; Axalta estimates Lat. Am. Projected Industry Sales The Industrial Coatings Market 2016 2017E 2018E 2019E 2020E $28.8 $27.3 $25.9 $23.3 $24.6 Wood: Expand product line, channel access; expand segments (f
Slide 39: Industrial Coatings: A $28B Market Opportunity
39PROPRIETARY General Industrial $12.0 Electrical Insulation $2.0 Architectual Extrusions $1.5 ACE $1.5 Oil & Gas $3.5 Coil $4.5 Wood $4.5 *Coil and Wood North America only ($ billions) Industrial Coatings: A $28B Market Opportunity For Axalta Volume growth driven by global GDP and Industrial Produc
Slide 40: Leading In Product Innovation
40PROPRIETARY Leading In Product Innovation HydroponTMGlass Coating Anti-Shatter Alesta® Lync Matte Clear technology Voltahyd 2250 waterborne series ICONICA Collection
Slide 41: Monumental 2017 Wins
41PROPRIETARY Monumental 2017 Wins Transbay Transit Center Decor Cabinet Company Amazon warehouse Philharmonie De Paris Concert Hall Lucid Motors Qualiform Metals
Slide 42: Transportation Coatings Overview
Transportation Coatings Overview
Slide 43: Axalta's Transportation Segment
43PROPRIETARY #2 global supplier to OEMs Transportation Light Vehicle Original Equipment Manufacturers Plastics and composite materials Metal coatings #1 global supplier to heavy duty truck and bus segments Commercial Vehicle Commercial trucks Rail Bus Utility trucks Recreational / o
Slide 44: Projected Industry Sales: Light Vehicle and Commercial Vehicle
44PROPRIETARY Projected Industry Sales: Light Vehicle Projected Industry Sales: Commercial Vehicle _____________________________ Source: Orr & Boss; Axalta estimates ($ billions) ($ millions) _____________________________ Source: Orr & Boss; Axalta estimates $1.5 $1.5 $1.5 $1.6 $1.6 $2.3 $2.3 $2.4 $
Slide 45: Axalta is actively transforming its business for profitable growth
45PROPRIETARY 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 launches Significant
Slide 46: Key Market Trends
46PROPRIETARY 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, Russia, China) Long-ter
Slide 47: Global Share: Significant Progress Made
47PROPRIETARY Global Share Significant Progress Made… Axalta 31% HDT and Bus Axalta 17% Light Vehicle Transforming A Global OEM Coatings Supplier Must continue to align technology with customer needs in key target areas Axalta needs to continue to refine cost structure to meet future challenges
Slide 48: Appendix
APPENDIX AXALTA COATING SYSTEMS
Slide 49: Adjusted EBITDA Reconciliation
49PROPRIETARY Adjusted EBITDA Reconciliation Note: Numbers might not foot due to rounding. ($ in millions) FY 2016 Q1 2016 Q2 2016 Q3 2016 Q1 2017 Q2 2017 Q3 2017 LTM 9/30/2017 Net Income (loss) $45 $33 $52 (5) $66 (19) $56 $68 Interest Expense, net 178 50 48 43 36 36 38 147 Provision for Income Tax
Slide 50: Adjusted EBITDA Reconciliation (cont'd)
50PROPRIETARY Adjusted EBITDA Reconciliation (cont’d) 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 $10 million.
Slide 51: Thank you!
Thank you! Investor Contact: Chris Mecray, VP IR Christopher.Mecray@axaltacs.com 215-255-7970
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