Borg Warner

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Borg Warner Borg Warner April 28 April 28 th th , 2005 , 2005 By: Tom Smith By: Tom Smith

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Borg Warner. April 28 th , 2005 By: Tom Smith. Presentation Overview. Overview of Company Macroeconomic Conditions Relevant Financial Data View Excel Sheet Future outlooks for company and industry Wrap-up. Overview of Borg Warner. - PowerPoint PPT Presentation

Transcript of Borg Warner

Page 1: Borg Warner

Borg WarnerBorg Warner

April 28April 28thth, 2005, 2005By: Tom SmithBy: Tom Smith

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Presentation OverviewPresentation Overview Overview of CompanyOverview of Company Macroeconomic ConditionsMacroeconomic Conditions Relevant Financial DataRelevant Financial Data View Excel SheetView Excel Sheet Future outlooks for company and industryFuture outlooks for company and industry Wrap-upWrap-up

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Overview of Borg WarnerOverview of Borg Warner Borg Warner Corporation formed in 1928 by Borg & Borg Warner Corporation formed in 1928 by Borg &

Beck, Warner Gear, and 2 other companiesBeck, Warner Gear, and 2 other companies Became private in 1987 and returned as a separate Became private in 1987 and returned as a separate

independent company in 1993independent company in 1993 Company specializes in innovating and creating Company specializes in innovating and creating

components to help improve engines and components to help improve engines and transmissions mainly for automobilestransmissions mainly for automobiles

14,500 employees14,500 employees Headquartered in Auburn Hills, MichiganHeadquartered in Auburn Hills, Michigan

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StrategyStrategy VisionVision

Leader in advanced products and technologies that Leader in advanced products and technologies that satisfy customer needssatisfy customer needs

Innovation & International GrowthInnovation & International Growth From CEO Timothy Manganello: “ Our From CEO Timothy Manganello: “ Our

technology, our customer diversity, our financial technology, our customer diversity, our financial discipline, and our staunch commitment to product discipline, and our staunch commitment to product leadership have built us a strong foundation for leadership have built us a strong foundation for continued global growth.”continued global growth.”

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What Makes Borg Warner a Good What Makes Borg Warner a Good Company?Company?

Constant Product Innovation to satisfy Constant Product Innovation to satisfy customerscustomers

Diversified International GrowthDiversified International Growth

Good Corporate GovernanceGood Corporate Governance

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ProductsProducts Engine GroupEngine Group

Develops strategies and products to manage Develops strategies and products to manage engines for fuel efficiency, reduced emissions, and engines for fuel efficiency, reduced emissions, and enhanced performanceenhanced performance Chain Products – automotive chain systemsChain Products – automotive chain systems Boosting System – Turbochargers (15% fuel Boosting System – Turbochargers (15% fuel

economy improvement)economy improvement) Emissions and Thermal Systems – Control Emissions and Thermal Systems – Control

emissions, engine air and thermal managementemissions, engine air and thermal management Beru Technologies – Diesel cold start technologyBeru Technologies – Diesel cold start technology

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ProductsProducts Drivetrain GroupDrivetrain Group

Innovates transmission & 4-wheel drive Innovates transmission & 4-wheel drive technology with control systemstechnology with control systems Transmission Products – “Shift” quality Transmission Products – “Shift” quality

components and systems (used with automatic components and systems (used with automatic transmissions as well)transmissions as well)

Torque Management – Torque Distribution and Torque Management – Torque Distribution and Management systems to enhance drivability, Management systems to enhance drivability, stability, and handling.stability, and handling.

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Recent Product InnovationsRecent Product Innovations Product InnovationProduct Innovation

Focused products on fuel efficiency and engine Focused products on fuel efficiency and engine efficiency efficiency

Won 2005 Automotive News PACE award for Won 2005 Automotive News PACE award for Industry-First DualTronic Transmission Industry-First DualTronic Transmission TechnologyTechnology

Discussed Variable Cam Timing, a technology that Discussed Variable Cam Timing, a technology that is becoming popular globallyis becoming popular globally VCT technology to grow 500% from 5.2 Million engines VCT technology to grow 500% from 5.2 Million engines

to 26 million engines by 2009to 26 million engines by 2009

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Diversified International GrowthDiversified International Growth Located in 17 different countriesLocated in 17 different countries

Products shipped to all over globe for various Products shipped to all over globe for various car manufacturerscar manufacturers

Recent acquisition of German Company Beru Recent acquisition of German Company Beru AG helps diversify operationsAG helps diversify operations

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CustomersCustomers Borg Warner is very well diversified with Borg Warner is very well diversified with

many different customers across the globemany different customers across the globe 3.5 Billion in Sales:3.5 Billion in Sales:

1.95 Billion from the U.S1.95 Billion from the U.S 1.25 Billion from Europe1.25 Billion from Europe .3 Billion from Other Countries.3 Billion from Other Countries

Do not rely too heavily on one customerDo not rely too heavily on one customer Ford is biggest with 16% of salesFord is biggest with 16% of sales

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CustomersCustomers

BMW

International

John Deere

PSA

ZF

Caterpillar

Honda

Hyundai/Kia

Renault/Nissan

Toyota

VW/Audi

GM

DamilerChysler

Ford

All Others

10%

16%

11%

7%

10%

6%

6%

Customer DiversityCustomer Diversity

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Strong Corporate GovernanceStrong Corporate Governance Corporate Governance CommitteeCorporate Governance Committee

Determine qualifications for Board MembersDetermine qualifications for Board Members Develop Corporate Governance Principles that Board Develop Corporate Governance Principles that Board

Members adopt for companyMembers adopt for company Finance & Audit CommitteeFinance & Audit Committee

Monitor integrity of Financial StatementsMonitor integrity of Financial Statements Monitor Independence of Auditors (external/internal)Monitor Independence of Auditors (external/internal)

Code of EthicsCode of Ethics Corporate Governance Quotient Better than Corporate Governance Quotient Better than

90.8% of S&P 400 companies and 95% of 90.8% of S&P 400 companies and 95% of automobile and components companiesautomobile and components companies

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Macroeconomic ConditionsMacroeconomic Conditions Overall Outlook for the auto industry is Overall Outlook for the auto industry is

negative for 2005, especially in North Americanegative for 2005, especially in North America GM tightening grip on suppliers because of low GM tightening grip on suppliers because of low

profits, lost $1.1 billion in 1profits, lost $1.1 billion in 1stst quarter 2005 quarter 2005 Car Manufacturers cutting production in 2005 due Car Manufacturers cutting production in 2005 due

to excess capacity alreadyto excess capacity already Raw material prices for steel and aluminum Raw material prices for steel and aluminum

reached highs in 2004 due to many factorsreached highs in 2004 due to many factors shortage of certain raw materialsshortage of certain raw materials

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CompetitorsCompetitors Main 4 CompetitorsMain 4 Competitors

Eaton CorpEaton Corp Delphi CorpDelphi Corp Dana CorpDana Corp Honeywell InternationalHoneywell International

Competitors are struggling as car industry Competitors are struggling as car industry outlook appears bleakoutlook appears bleak Dana Corp profits down, Delphi’s debt rating have Dana Corp profits down, Delphi’s debt rating have

recently been cut (BB – 2recently been cut (BB – 2ndnd highest Junk Level) highest Junk Level)

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CompetitorsCompetitors Most competitors are involved in other parts of Most competitors are involved in other parts of

car industry or other industries all togethercar industry or other industries all together Eaton also provides servicing of fluid power systems Eaton also provides servicing of fluid power systems

for industrial, mobile, and aircraft equipmentfor industrial, mobile, and aircraft equipment Delphi provides automotive electronics, halfshafts, Delphi provides automotive electronics, halfshafts,

condensers, batteries, filters, spark plugs, generators condensers, batteries, filters, spark plugs, generators and compressors and compressors

Dana Corp provides chassis and vehicle architecture Dana Corp provides chassis and vehicle architecture technologiestechnologies

Honeywell focused in aerospace and defense Honeywell focused in aerospace and defense industryindustry

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Porter’s Five Forces AnalysisPorter’s Five Forces Analysis Bargaining Power of Buyers = HighBargaining Power of Buyers = High Bargaining Power of Suppliers = HighBargaining Power of Suppliers = High Threat of Substitutes = LowThreat of Substitutes = Low Threat of New Entrants = ModerateThreat of New Entrants = Moderate Industry Rivalry = ModerateIndustry Rivalry = Moderate

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Borg Warner vs. Auto Borg Warner vs. Auto IndustryIndustry

Sales Growth for past decadeSales Growth for past decade

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Relevant Financial StatisticsRelevant Financial Statistics Key StatisticsKey Statistics

Market Cap. = 2.57 BillionMarket Cap. = 2.57 Billion P/E = 11.79P/E = 11.79 PEG ratio = .83PEG ratio = .83 Profit Margin = 6.45%Profit Margin = 6.45% ROA = 6.97%ROA = 6.97% ROE = 15.67%ROE = 15.67% Revenue Growth = 14.9% on $3.53 BillionRevenue Growth = 14.9% on $3.53 Billion Net Income = $218 MillionNet Income = $218 Million Total Debt = $584.5 MillionTotal Debt = $584.5 Million Beta = .983Beta = .983 Div Yield = 1.22%Div Yield = 1.22%

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Financial Data Comparison with Financial Data Comparison with CompetitorsCompetitors

Borg WarnerBorg Warner Market Cap. = 2.57 BillionMarket Cap. = 2.57 Billion P/E = 11.79P/E = 11.79 Profit Margin = 6.45%Profit Margin = 6.45% ROE = 15.67%ROE = 15.67% Revenue Growth = 14.9%Revenue Growth = 14.9% Debt = $584.5 MillionDebt = $584.5 Million

Dana CorpDana Corp Market Cap. = 1.74 BillionMarket Cap. = 1.74 Billion P/E = 29.2P/E = 29.2 Profit Margin = .39%Profit Margin = .39% ROE = 2.7%ROE = 2.7% Revenue Growth = 11.40%Revenue Growth = 11.40% Debt = $2.35 BillionDebt = $2.35 Billion

EatonEaton Market Cap. = $10.77 BillionMarket Cap. = $10.77 Billion P/E = 13.8P/E = 13.8 Profit Margin = 6.85%Profit Margin = 6.85% ROE = 20.98%ROE = 20.98% Revenue Growth = 21.80%Revenue Growth = 21.80% Debt = $2.1 BillionDebt = $2.1 Billion

Honeywell InternationalHoneywell International Market Cap. = $30.93 BillionMarket Cap. = $30.93 Billion P/E = 23.28P/E = 23.28 Profit Margin = 5.20%Profit Margin = 5.20% ROE = 12.11%ROE = 12.11% Revenue Growth = 10.80%Revenue Growth = 10.80% Debt = $6.07 BillionDebt = $6.07 Billion

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Extra FinancialsExtra Financials Borg Warner has 229.7 Million in CashBorg Warner has 229.7 Million in Cash Cash from Operations = 426 MillionCash from Operations = 426 Million Total Debt = 584.5 MillionTotal Debt = 584.5 Million Earnings Growth is 14.76% and 20.55% in Earnings Growth is 14.76% and 20.55% in

2003 and 2004 respectively2003 and 2004 respectively

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Stock Chart – 1 YearStock Chart – 1 Year

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Stock Chart – 5 YearStock Chart – 5 Year

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Borg Warner vs. S&P 500 and S&P Borg Warner vs. S&P 500 and S&P 400400

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Excel TimeExcel TimeNote: Borg Warner’s income statement does not show separate items for Note: Borg Warner’s income statement does not show separate items for

depreciation and amortization. These numbers were taken from the depreciation and amortization. These numbers were taken from the cash flow sheet and they are assumed to be included within cost of cash flow sheet and they are assumed to be included within cost of goods sold on the income statement.goods sold on the income statement.

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Sensitivity AnalysisSensitivity Analysis Cogs 77% of RevenuesCogs 77% of Revenues

Stock Price = 42.13Stock Price = 42.13 Cogs 77% of Revenue, Revenue Growth= 12%Cogs 77% of Revenue, Revenue Growth= 12%

Stock Price = 45.26Stock Price = 45.26 Cogs 76% of RevenuesCogs 76% of Revenues

Stock Price = 49.21Stock Price = 49.21 Cogs Decrease from 76%-75%, Rev. increase from 10-12%Cogs Decrease from 76%-75%, Rev. increase from 10-12%

Stock Price = 54.72Stock Price = 54.72 Cogs 77% of Revenues, Revenue Growth 8%Cogs 77% of Revenues, Revenue Growth 8%

Stock Price = 39.17Stock Price = 39.17 As we can see, slight movement up in COGS or down in As we can see, slight movement up in COGS or down in

Revenues greatly affects stock price negativelyRevenues greatly affects stock price negatively

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Future ExpectationsFuture Expectations Borg Warner management is very forward Borg Warner management is very forward

looking:looking: Predict the number of automated fuel efficient Predict the number of automated fuel efficient

engines in Europe will triple by 2009engines in Europe will triple by 2009 Foresee that commodity prices will decrease Foresee that commodity prices will decrease

because they were at all-time highs in 2004because they were at all-time highs in 2004 Sales in China and India expected to increase 5-Sales in China and India expected to increase 5-

fold over next 5 yearsfold over next 5 years

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Future ExpectationsFuture Expectations Continued focus on cost improvementsContinued focus on cost improvements

Production and procurement of raw materialsProduction and procurement of raw materials Have built a disciplined cost reduction processHave built a disciplined cost reduction process Have reduced expenses will continuing to invest in Have reduced expenses will continuing to invest in

research and developmentresearch and development

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New Company DevelopmentsNew Company Developments Acquisition of Beru allows Borg Warner to Acquisition of Beru allows Borg Warner to

enter and thrive in cold diesel engine segment enter and thrive in cold diesel engine segment of marketof market

Dualtronic technology as mentioned earlierDualtronic technology as mentioned earlier

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Threats to CompanyThreats to Company Overall condition of marketOverall condition of market

Suppliers can get crunched and production on automobiles Suppliers can get crunched and production on automobiles will slow downwill slow down

Commodity prices continue to increase or remain highCommodity prices continue to increase or remain high GM and Ford (26% of Sales) are struggling & cutting GM and Ford (26% of Sales) are struggling & cutting

productionproduction Forecasted Sales do not occur at predicted paceForecasted Sales do not occur at predicted pace Exchange Rate hurts companyExchange Rate hurts company

Sales increased heavily in Europe, where Euro was stronger Sales increased heavily in Europe, where Euro was stronger than dollar, in 2003-2004 – generated over 3% of revenue in than dollar, in 2003-2004 – generated over 3% of revenue in 2004.2004.

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DecisionDecision I propose that we put Borg Warner on the I propose that we put Borg Warner on the

watch listwatch list Too much risk in cost of raw materialsToo much risk in cost of raw materials Automobile industry is falteringAutomobile industry is faltering Wait till close to end of 2005 to see how well Wait till close to end of 2005 to see how well

company predicted sales and costscompany predicted sales and costs

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In ConclusionIn Conclusion Borg Warner is well positioned for future Borg Warner is well positioned for future

global growthglobal growth Still have backloads for orders from 2004, may Still have backloads for orders from 2004, may

be able to get through 2005 downturnbe able to get through 2005 downturn However, condition in industry and market is However, condition in industry and market is

too risky at the momenttoo risky at the moment Company remains a viable supplier, class Company remains a viable supplier, class

should look at it in the fall 2005 semestershould look at it in the fall 2005 semester