Schouw & Co. acquires Borg Automotive Investor presentation 20 - - PowerPoint PPT Presentation

Schouw & Co. acquires Borg Automotive

Investor presentation

20 March 2017 CEO Jens Bjerg Sørensen | IR Kasper Okkels

Borg Automotive, a leading remanufacturing company

▪ Borg Automotive is a remanufacturing company founded in 1979 by Søren Toft-Jensen ▪ The company specialises in the production and sales of remanufactured parts for the automotive industry like alternators, starters, brake calipers ▪ Borg is Europe's leading independent auto remanufacturer with broadest product range and sales in almost all European countries ▪ Customers (+100) are wholesalers, distributors and OES/OEM’s; largest ~10% of sales ▪ Headquarter in Silkeborg with production sites in Poland and UK, and a R&D facility in Belgium ▪ The group consists of Borg Automotive (Denmark/Poland) and Car Part Industries (UK/Belgium), which was acquired in 2011 ▪ FTEs: ~1,400

20.03.2017 Acquisition of Borg Automotive 2

6% 7%

All products

100% 3% 50% 34%

Brake calipers Starters & alternators Steering AC com- pressors EGR valves

Product split

+11% 16/17E 15/16 14/15 13/14 15/16 +72% 16/17E 13/14 14/15

Due to one-offs

Notes: Negative EBIT in 2014/15 is related to transfer of brake caliper production to Poland, various restructuring in UK and significant loss on a single customer

Borg Automotive at a glance Revenue EBIT

Remanufacturing in Europe to grow ~8%

20.03.2017 Acquisition of Borg Automotive 3

Growing carpark & new sales 2.3% annual car park growth towards 2020 Longer vehicle lifetime +1 year in average life- time since 2010 Declining num- ber of accidents 1% annual reduction in accidents since 2010 Structural change Growing aftermarket liberalisation via regul. Maturing reman. capabilities Drives industry promo- tion/knowledge sharing

Notes: 1) The remanufacturing of automotive components yields some 88% materials savings compared to using a new product, with an associated 53% decrease in CO2 emitted and 56% lower energy requirement (EU Commission, 2015)

Global green agenda Supply concern ‘critical’ to EU (focus on CO2)1

1 2 3 4 5 6

EUR billion Forecast 10.8 2018 2014 8.7 7.4 2013 2015 2016 8.0 9.4 10.1 2017 2020 11.6 2019 ~7% ~8% 6.5 7.0 2012

European remanufacturing drivers European auto remanufacturing market

Acquisition makes good business sense

20.03.2017 Acquisition of Borg Automotive 4

581 8.867

2016 Revenue (DKKm) 2016 EBIT (DKKm)

246 1.792 1.747 111 61 877 ~125* ~900* 81 1.301

Notes: *) Borg Automotive’ s accounting principles will be changed following the acquisition to adapt to IFRS. Pro-forma FY2016 revenue and EBIT before any effect of PPA

Rationale, conglomerate level

▪ Current capital structure provides room for significant investment on top of current investment programs ▪ Span of control target of 5-7 businesses enables new value enhancing platform investments ▪ Continue value-creation of the conglomerate by pursuing attractive buy-and-build opportunities ▪ A new platform investment is key in ‘the next step’ of Schouw & Co.

Rationale, business level

▪ Borg Automotive fulfils all investment criteria

▪ Leading position – leading position in Europe ▪ B2B – processing of remanufacturing auto parts servicing global wholesalers, buying groups and OES/OEMs ▪ Internationally focused – sales throughout Europe with production in Poland and UK ▪ Strong management – highly skilled management team willing to step-change the company ▪ Active ownership – significant opportunity for transformation through active ownership

▪ Borg Automotive is well-run and among the best-in-class to deliver growth and profitability ▪ Well positioned with solid presence in attractive markets and all major product categories ▪ Industry growth of ~8% is unique ▪ Significant opportunities to drive further growth in a fragmented industry, organically and through M&A

Transaction details

20.03.2017 Acquisition of Borg Automotive 5

Notes: 1) New accounting principles lifts revenue and is not comparable to existing practice; 2) Before effect from PPA; 3) Illustrative only

Valuation

▪ Complex transaction due to previous

• wnership structure where ‘Borg Fonden’
• wned a minority in one of the two entities in

the transaction scope ▪ Schouw & Co. has an option (and an

• bligation) to obtain full ownership within a

relatively short period of time ▪ Following a string of transactions Schouw &

• Co. will own 85% of the combined Borg

Automotive Group and Søren Toft-Jensen will

• wn the remaining 15%

▪ Due to the purchase obligation of the 15%

• wnership stake, Schouw & Co. will recognize

a liability in the balance sheet at fair value, i.e. treat the option as a debt-like item rather than a non-controlling interest (NCI) ▪ Any communication on purchase price of the company incorporates the fair present value

• f the minority share and hence assumes a

valuation comparable to 100% of the shares

Søren Toft-Jensen Car Parts Industries Borg Automotive Borg Fonden

100% 81% 19%

Current structure3 Intermediate structure (½-2 years) Søren Toft-Jensen Schouw & Co. Borg Holding Car Parts Industries Borg Automotive

85% 15% 100% 100%

End structure (+2 years) Schouw & Co. Borg Holding Car Parts Industries Borg Automotive

100% 100% 100%

Transaction

▪ Enterprise Value is DKK ~1,150m

For 100% of the shares incl. estimate of the fair value of the minority interest

▪ Financial estimates 2017 (Jan-Dec) ▪ Transaction multiples ▪ Recognised in Schouw & Co. 2017 Q2-Q4

Sales1 DKK ~1,050m EBITDA DKK ~170m EBIT2 DKK ~160m Sales ~1.1x EBITDA ~6.8x EBIT2 ~7.2x Revenue DKK ~800m EBIT2 DKK 110-130m