VARTA AG. Tomorrow s energy solutions. October 2017 VARTA AG

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1 Tomorrow s energy solutions October

2 Disclaimer lease note that and its operating subsidiaries VARTA Microbattery GmbH and VARTA Storage GmbH, are hereafter collectively referred to as VARTA, belonging to the Montana Tech Components group, are not the sole successors to the old that was split into three parts in the year The group presented in this document is not the sole owner of the VARTA trademarks. The two other independent successors and VARTA trademark owners are Johnson Controls Hybrid and Recycling GmbH (before: VARTA Automotive GmbH) belonging to the Johnson Controls Group (automotive batteries and partly industrial batteries) and VARTA Consumer Batteries GmbH & Co. KGaA belonging to the Spectrum Brands group (consumer batteries). The information in this publication was developed using data that we assume to be accurate; nevertheless, we accept no liability and offer no guarantee with respect thereto. The statements made in this publication are subject to change without prior notice. Certain information in this publication is based on management estimates. Such estimates have been made in good faith and represent the current beliefs of applicable members of management. Estimates may not be correct or complete. Accordingly, no representation or warranty (express or implied) is given that such estimates are correct or complete. Certain information in this publication is based on statements by third parties. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of this information or any other information or opinions contained herein, for any purpose whatsoever. Certain statements contained herein may be statements of future expectations and other forward-looking statements that are based on VARTA s current views and assumptions and involve known and unknown risks and uncertainties that may cause actual results, performance or events to differ materially from those expressed or implied in such statements. No one undertakes to publicly update or revise any such forward-looking statement. Neither VARTA nor any of its officers, employees or affiliates nor any other person assumes or accepts any responsibility, obligation or liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of the statements contained herein as to third person statements, any statements of future expectations and other forward-looking statements, or the fairness, accuracy, completeness or correctness of statements contained herein. This publication contains certain financial measures (including forward-looking measures) that are not calculated in accordance with IFRS and are therefore considered "non-ifrs financial measures". The management of VARTA believes that these non-ifrs financial measures used by VARTA, when considered in conjunction with (but not in lieu of) other measures that are computed in accordance with IFRS, enhance an understanding of VARTA's results of operations, financial position or cash flows. A number of these non-ifrs financial measures are also commonly used by securities analysts, credit rating agencies and investors to evaluate and compare the periodic and future operating performance and value of other companies with which VARTA competes. These non-ifrs financial measures should not be considered in isolation as a measure of VARTA's profitability or liquidity, and should be considered in addition to, rather than as a substitute for, net income and the other income or cash flow data prepared in accordance with IFRS. In particular, there are material limitations associated with the use of non-ifrs financial measures, including the limitations inherent in determination of each of the relevant adjustments. The non-ifrs financial measures used by VARTA may differ from, and not be comparable to, similarly-titled measures used by other companies. Certain numerical data, financial information and market data (including percentages) in this publication have been rounded according to established commercial standards. Furthermore, in tables and charts, these rounded figures may not add up exactly to the totals contained in the respective tables and charts. 2

3 and its subsidiaries today and its operative subsidiaries VARTA Microbattery GmbH and VARTA Storage GmbH, part of Montana Tech Components group, are not the sole successors to the old, having been split -up into three parts in the year 2002, and not the sole owner of the VARTA Trademarks The two other independent successors and VARTA Trademark owners are: Johnson Controls Hybrid and Recycling GmbH (FKA: VARTA Automotive GmbH) belonging to the Johnson Controls group (automotive batteries and partly industrial batteries) VARTA Consumer Batteries GmbH & Co. KGaA belonging to the Spectrum Brands group (consumer batteries). None of the three successor VARTA companies may use the VARTA brand for hearing aid batteries; VARTA Microbattery GmbH markets microbatteries for hearing aids via the brand power one Montana Tech Components Group Spectrum Brands Johnson Controls, Inc. (JCI) (parent and holding company functions) VARTA Microbattery GmbH (operative company: Microbatteries) VW-VM Forschungsgesellschaft mbh & Co. KG (R&D joint venture with VOLKSWAGEN AG) VARTA Storage GmbH (operative company: ower & Energy) VARTA Consumer Batteries GmbH & Co. KGaA (Consumer Batteries) Johnson Control Hybrid and Recycling GmbH (before: VARTA Automotive GmbH) (Automotive Batteries and specific Industrial Batteries 3

4 VARTA (1) a global leader in battery solutions A trusted German brand with >130 years experience Germany 130 years (1) Global >1,000,000,000 cell production p.a. Geographic sales footprint (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 4

5 Leading technologies for mission-critical......high-end applications Quality erformance Reliability Leadership 5

6 roven Market selection Research & Development (1) Mass production know-how Dedicated marketing strategy Healthcare Entertainment & Industrial ower & Energy R&D for future applications (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 6

7 Highly successful growth story with profitable track record Revenue (in m) CAGR: 10.3% % acquisition of VARTA (1) H H Adjusted EBITDA / Adjusted EBITDA margin (2) (in m / in %) 10.5% 12.2% 9.6% 16.2% 26.1 acquisition of VARTA (1) H H Unique combination of highly profitable core business and outstanding growth opportunities Note: audited, H and H unaudited; (1) (acquired in 2012) / VARTA Microbattery GmbH (acquired in 2007); (2) EBITDA adjusted for sales and leaseback transaction, rent, IO related costs and carve -out pension obligations Source: Consolidated/ combined financial statements 7

8 Outstanding quality and production efficiency Developer and producer of high-quality batteries & solutions Microbatteries (1) ower & Energy (2) Healthcare Entertainment & Industrial End markets roducts Mainly non-rechargeable / replacement Mainly rechargeable / embedded Rechargeable US Industry standard Tailormade design & solutions roduction Highly automated mass cell production in Germany Asset light cell sourcing assembly in Romania & Asia Competitive advantage Leading in quality Excellence in technology, manufacturing and costs (1) VARTA Microbattery GmbH; (2) VARTA Storage GmbH; formerly known as the company s Energy Storage Solutions segment 8

9 Highlights 1 roven Established in attractive Healthcare segment driven by innovation and backed by barriers of entry 2 VARTA (1) defining the industry standard by delivering highest quality at competitive prices a trusted brand (1) 3 Business model successfully transferred to wearables targeting 4 for premium applications fuelling accelerated growth 5 Highly attractive backed by visible growth opportunities and with further profitability potential (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 9

10 1 roven roven Market selection Attractive niche markets backed by positive growth trends otential for VARTA (1) to become a leading player (1) Research & Development Constant R&D of new products and technologies In-house development of key production machines Mass production know-how Highly automated production Strategy for quality and cost leadership through highspeed production lines Dedicated marketing strategy Multi-brand strategy Covering B2B channels Healthcare Entertainment & Industrial ower & Energy R&D for future applications (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 10

11 1 roven Having built a market leader from scratch Global hearing aid microbattery market (illustrative) (1) (2) Competitor (2) Competitor #2 # Market share Competitor # Market share (1) Company estimates based on own numbers of batteries sold; (2) / VARTA Microbattery GmbH / VARTA Storage GmbH 11

12 roven 1 Leading position in consolidated hearing aid battery market backed by high barriers of entry Excellence in technology Excellence in manufacturing and costs Close relationships to broad blue chip customer base Hearing aid manufacturers Retail Leading primary battery technology through foil sealing Sonova Sivantos Widex via 3rd party brands Tender White label Leading rechargeable battery technology for future disruption Highly automated production VA Healthcare NHS Australian Hearing (1) Trusted B2B brands for highest quality and innovation (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 12

13 roven 1 Global hearing aid market shows highly attractive and visible future growth driven by underlying structural trends CAGR: ~4-5% (1) (2) Hearing aids sold globally (3) x 4-5 years approx. hearing aid lifecycle (4)(5) ~2bn cells in % hearing aid growth p.a. (2) Market in 2020 x ~30-50 approx. hearing aid batteries p.a. / device (5) Ageing demographics Underpenetration Increased smartphone -linked features & smaller form factors Emergence of new markets (1) Sonova Annual Report 2009/2010; (2) Sonova Investor resentation (June 2017); (3) thereof <1m rechargeable hearing aid devices (company estimates); (4) Better Hearing Institute Care and maintenance of hearing aids (2011); (5) Company estimates 13

14 roven 2 Operational excellence leading to cost and quality advantage In-house designed and built key production machinery Highly automated production processes Experience in scaling production at required quality levels Secured production know-how ~1bn total hearing aid battery production capacity p.a. (1) Cell production per labour minute (1) VARTA Microbattery GmbH; (2) For zinc-air batteries ( ), company data 14

15 2 roven Cutting-edge innovations through continuous R&D internal R&D capabilities paired with a strong R&D network to stay at the forefront of future technologies 10.8m R&D investments (1) 5.1% R&D in % of revenue (1) Selected industrial R&D partners rinted batteries Rechargeable siliconcomposite electrodes and post-lithium systems New housing technologies >130 FTEs (2) Selected academic R&D partners New form factors for lithium-ion cells >200 patents Higher energy density Constant miniaturization (1) R&D investments excl. effect of state funding and funded research projects (fiscal year 2016); (2) Number of technology professionals in Germany as of Source: Company information, consolidated financial statements 15

16 roven 3 VARTA s (1) experience from Healthcare leading to competitive advantage in Entertainment & Industrial Market selection Attractive growth market backed by consumer mega-trends otential for VARTA (1) to become a leading player (1) Research & Development Leading technology driver for coin-shaped cells In-house developed key production machines Mass production know-how Highly automated production Strategy for quality and cost leadership Dedicated marketing strategy Enabler for development of new devices Joint development in early design-in processes Healthcare Entertainment & Industrial ower & Energy R&D for future applications (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 16

17 roven 3 Entertainment market driven by strong technology trends Electronic device wearable market (1) (in $bn) CAGR: 40.7% A 2015E 2016E 2017E 2018E 2019E 2020E Wireless connectivity Usability Miniaturization roliferation of devices (1) W ifore Consulting (February 2015): The Market for Smart W earable Technology 17

18 roven 3 Successful design-ins for blue-chip customer base...lead to strong order backlog Entertainment & Industrial order backlog (in m pieces) 6x Dec Dec Jun 2017 Capacity / utilization of production (illustrative) lanned capacity expansion in Germany to handle strong segment growth 18

19 roven 4 Leveraging on long standing experience as premium Market selection Attractive growth market backed by consumer mega-trends otential for VARTA (1) to become a leading player in its target market Research & Development Electrochemistry, electronics and mechanical know-how (1) Mass production know-how assembly in Asia & Romania otential for automation Dedicated marketing strategy Supporting trend towards increasing demand for quality Joint development in early design-in processes Healthcare Entertainment & Industrial ower & Energy R&D for future applications (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 19

20 4 roven Huge addressable market driven by mega trends Industrial Robotics Communication Energy storage systems VARTA (1) competences Electro chemistry know-how Electronics know-how Medical ower tools Garden appliances Home appliances Global production facilities & supply chain Design-in competence Green technologies Miniaturization Convenience Machine autonomy (1) / VARTA Microbattery GmbH / VARTA Storage GmbH 20

21 roven 5 past development of to be accelerated in the future Metric / KI Revenue Development erformance m +10.3% CAGR m EBITDA Adjusted EBITDA (1) 18.2m +9.3% CAGR m +16.0% CAGR m 26.1m Adjusted EBITDA margin (1) Trade working capital (2) ROIC (1)(3) 10.5% +1.7pp 12.2% 38.5m (5.9)% 36.2m 14.1% +3.2pp 17.3% Note: audited; (1) EBIT/EBITDA adjusted for sales and leaseback transaction, rent, IO related costs and carve -out pension obligations; (2) Trade working capital defined as sum of inventories, trade receivables, less trade payables and advances received from customers; (3) ROIC calculated as adjusted EBIT/ Average Invested Capital; Invested Capital is calculated as the sum of inventories, trade receivables and the carrying amounts of property, plant and equipment and intangible assets, less t rade payables and advances received from customers Source: Company information, consolidated/ combined financial statements 21

22 roven 5 s growth trajectory backed by most recent performance Metric / KI Revenue Development H H H erformance H m +12.5% year-on-year 119.7m EBITDA Adjusted EBITDA (1) 10.2m % year-on-year 10.2m +89.9% year-on-year 23.0m 19.4m Adjusted EBITDA margin (1) 9.6% +6.6pp 16.2% Trade working capital (2) Adj. EBIT (1) 48.6m (20.8)% year-on-year 5.8m % year-on-year 38.5m 14.9m Invested capital (3) n.a. n.a m Note: H and H unaudited; (1) EBIT/EBITDA adjusted for sales and leaseback transaction, rent, IO related costs and carve -out pension obligations; (2) Trade working capital defined as sum of inventories, trade receivables, less trade payables and advances received from customers; (3) Invested Capi tal is calculated as the sum of inventories, trade receivables and the carrying amounts of property, plant and equipment and intangible assets, less trade payables and advances received fr om customers Source: Company information, consolidated/ combined financial statements 22