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Borg Warner

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Overall Outlook for the auto industry is negative for 2005, especially in ... Most competitors are involved in other parts of car industry or other industries ... – PowerPoint PPT presentation

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Title: Borg Warner


1
Borg Warner
  • April 28th, 2005
  • By Tom Smith

2
Presentation Overview
  • Overview of Company
  • Macroeconomic Conditions
  • Relevant Financial Data
  • View Excel Sheet
  • Future outlooks for company and industry
  • Wrap-up

3
Overview of Borg Warner
  • Borg Warner Corporation formed in 1928 by Borg
    Beck, Warner Gear, and 2 other companies
  • Became private in 1987 and returned as a separate
    independent company in 1993
  • Company specializes in innovating and creating
    components to help improve engines and
    transmissions mainly for automobiles
  • 14,500 employees
  • Headquartered in Auburn Hills, Michigan

4
Strategy
  • Vision
  • Leader in advanced products and technologies that
    satisfy customer needs
  • Innovation International Growth
  • From CEO Timothy Manganello Our technology,
    our customer diversity, our financial discipline,
    and our staunch commitment to product leadership
    have built us a strong foundation for continued
    global growth.

5
What Makes Borg Warner a Good Company?
  • Constant Product Innovation to satisfy customers
  • Diversified International Growth
  • Good Corporate Governance

6
Products
  • Engine Group
  • Develops strategies and products to manage
    engines for fuel efficiency, reduced emissions,
    and enhanced performance
  • Chain Products automotive chain systems
  • Boosting System Turbochargers (15 fuel economy
    improvement)
  • Emissions and Thermal Systems Control
    emissions, engine air and thermal management
  • Beru Technologies Diesel cold start technology

7
Products
  • Drivetrain Group
  • Innovates transmission 4-wheel drive technology
    with control systems
  • Transmission Products Shift quality
    components and systems (used with automatic
    transmissions as well)
  • Torque Management Torque Distribution and
    Management systems to enhance drivability,
    stability, and handling.

8
Recent Product Innovations
  • Product Innovation
  • Focused products on fuel efficiency and engine
    efficiency
  • Won 2005 Automotive News PACE award for
    Industry-First DualTronic Transmission Technology
  • Discussed Variable Cam Timing, a technology that
    is becoming popular globally
  • VCT technology to grow 500 from 5.2 Million
    engines to 26 million engines by 2009

9
Diversified International Growth
  • Located in 17 different countries
  • Products shipped to all over globe for various
    car manufacturers
  • Recent acquisition of German Company Beru AG
    helps diversify operations

10
Customers
  • Borg Warner is very well diversified with many
    different customers across the globe
  • 3.5 Billion in Sales
  • 1.95 Billion from the U.S
  • 1.25 Billion from Europe
  • .3 Billion from Other Countries
  • Do not rely too heavily on one customer
  • Ford is biggest with 16 of sales

11
Customers
Customer Diversity
12
Strong Corporate Governance
  • Corporate Governance Committee
  • Determine qualifications for Board Members
  • Develop Corporate Governance Principles that
    Board Members adopt for company
  • Finance Audit Committee
  • Monitor integrity of Financial Statements
  • Monitor Independence of Auditors
    (external/internal)
  • Code of Ethics
  • Corporate Governance Quotient Better than 90.8
    of SP 400 companies and 95 of automobile and
    components companies

13
Macroeconomic Conditions
  • Overall Outlook for the auto industry is negative
    for 2005, especially in North America
  • GM tightening grip on suppliers because of low
    profits, lost 1.1 billion in 1st quarter 2005
  • Car Manufacturers cutting production in 2005 due
    to excess capacity already
  • Raw material prices for steel and aluminum
    reached highs in 2004 due to many factors
  • shortage of certain raw materials

14
Competitors
  • Main 4 Competitors
  • Eaton Corp
  • Delphi Corp
  • Dana Corp
  • Honeywell International
  • Competitors are struggling as car industry
    outlook appears bleak
  • Dana Corp profits down, Delphis debt rating have
    recently been cut (BB 2nd highest Junk Level)

15
Competitors
  • Most competitors are involved in other parts of
    car industry or other industries all together
  • Eaton also provides servicing of fluid power
    systems for industrial, mobile, and aircraft
    equipment
  • Delphi provides automotive electronics,
    halfshafts, condensers, batteries, filters, spark
    plugs, generators and compressors
  • Dana Corp provides chassis and vehicle
    architecture technologies
  • Honeywell focused in aerospace and defense
    industry

16
Porters Five Forces Analysis
  • Bargaining Power of Buyers High
  • Bargaining Power of Suppliers High
  • Threat of Substitutes Low
  • Threat of New Entrants Moderate
  • Industry Rivalry Moderate

17
Borg Warner vs. Auto Industry
  • Sales Growth for past decade

18
Relevant Financial Statistics
  • Key Statistics
  • Market Cap. 2.57 Billion
  • P/E 11.79
  • PEG ratio .83
  • Profit Margin 6.45
  • ROA 6.97
  • ROE 15.67
  • Revenue Growth 14.9 on 3.53 Billion
  • Net Income 218 Million
  • Total Debt 584.5 Million
  • Beta .983
  • Div Yield 1.22

19
Financial Data Comparison with Competitors
  • Borg Warner
  • Market Cap. 2.57 Billion
  • P/E 11.79
  • Profit Margin 6.45
  • ROE 15.67
  • Revenue Growth 14.9
  • Debt 584.5 Million
  • Dana Corp
  • Market Cap. 1.74 Billion
  • P/E 29.2
  • Profit Margin .39
  • ROE 2.7
  • Revenue Growth 11.40
  • Debt 2.35 Billion
  • Eaton
  • Market Cap. 10.77 Billion
  • P/E 13.8
  • Profit Margin 6.85
  • ROE 20.98
  • Revenue Growth 21.80
  • Debt 2.1 Billion
  • Honeywell International
  • Market Cap. 30.93 Billion
  • P/E 23.28
  • Profit Margin 5.20
  • ROE 12.11
  • Revenue Growth 10.80
  • Debt 6.07 Billion

20
Extra Financials
  • Borg Warner has 229.7 Million in Cash
  • Cash from Operations 426 Million
  • Total Debt 584.5 Million
  • Earnings Growth is 14.76 and 20.55 in 2003 and
    2004 respectively

21
Stock Chart 1 Year
22
Stock Chart 5 Year
23
Borg Warner vs. SP 500 and SP 400
24
  • Excel Time
  • Note Borg Warners income statement does not
    show separate items for depreciation and
    amortization. These numbers were taken from the
    cash flow sheet and they are assumed to be
    included within cost of goods sold on the income
    statement.

25
Sensitivity Analysis
  • Cogs 77 of Revenues
  • Stock Price 42.13
  • Cogs 77 of Revenue, Revenue Growth 12
  • Stock Price 45.26
  • Cogs 76 of Revenues
  • Stock Price 49.21
  • Cogs Decrease from 76-75, Rev. increase from
    10-12
  • Stock Price 54.72
  • Cogs 77 of Revenues, Revenue Growth 8
  • Stock Price 39.17
  • As we can see, slight movement up in COGS or down
    in Revenues greatly affects stock price
    negatively

26
Future Expectations
  • Borg Warner management is very forward looking
  • Predict the number of automated fuel efficient
    engines in Europe will triple by 2009
  • Foresee that commodity prices will decrease
    because they were at all-time highs in 2004
  • Sales in China and India expected to increase
    5-fold over next 5 years

27
Future Expectations
  • Continued focus on cost improvements
  • Production and procurement of raw materials
  • Have built a disciplined cost reduction process
  • Have reduced expenses will continuing to invest
    in research and development

28
New Company Developments
  • Acquisition of Beru allows Borg Warner to enter
    and thrive in cold diesel engine segment of
    market
  • Dualtronic technology as mentioned earlier

29
Threats to Company
  • Overall condition of market
  • Suppliers can get crunched and production on
    automobiles will slow down
  • Commodity prices continue to increase or remain
    high
  • GM and Ford (26 of Sales) are struggling
    cutting production
  • Forecasted Sales do not occur at predicted pace
  • Exchange Rate hurts company
  • Sales increased heavily in Europe, where Euro was
    stronger than dollar, in 2003-2004 generated
    over 3 of revenue in 2004.

30
Decision
  • I propose that we put Borg Warner on the watch
    list
  • Too much risk in cost of raw materials
  • Automobile industry is faltering
  • Wait till close to end of 2005 to see how well
    company predicted sales and costs

31
In Conclusion
  • Borg Warner is well positioned for future global
    growth
  • Still have backloads for orders from 2004, may be
    able to get through 2005 downturn
  • However, condition in industry and market is too
    risky at the moment
  • Company remains a viable supplier, class should
    look at it in the fall 2005 semester
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