Aptiv PLC DEFA14A, filed Apr 7, 2021
Aptiv PLC (APTV)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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APTIV Investor outreach April 2021
Executive Summary EXECUTING OUR STRATEGY TO BUILD A MORE SUSTAINABLE BUSINESS – BEFORE, DURING AND AFTER THE DISRUPTIVE IMPACT OF COVID BUILDING A MORE SUSTAINABLE BUSINESS IMPACT OF THE COVID-19 PANDEMIC EXECUTIVE COMPENSATION Industry-leading Product Portfolio Human Capital Linked to Business Strategy Active Board Engagement Strong Financial Performance Unprecedented 6-Month Financial Impact in 2020 Navigating Through the Crisis Proactive Shareholder Outreach Consistently Strong Say-on-Pay Support – 97.8% 9-year Avg Compensation Governance Reflects Shareholder Feedback Board Discretion Restores Motivational / Retentive Impact Right Plan Adjustments for More Volatile Environment Aptiv Investor Outreach, April 2021
Aptiv Investor Outreach, April 2021 Building A More Sustainable Business MANAGEMENT AND BOARD OF DIRECTORS ALIGNED ON BUSINESS TRANSFORMATION AND VALUE CREATION TRANSFORMING OUR BUSINESS FOUNDATION… …RESULTING IN SUSTAINABLE VALUE CREATION Improved market positions around safe, green and connected megatrends Optimized portfolio of advanced technologies ACTIVE BOARD ENGAGEMENT HUMAN CAPITAL DELIVERING ON OUR VISION STRONG FINANCIAL PERFORMANCE CREATED INDUSTRY LEADING GROWTH PORTFOLIO Experienced, qualified, diverse, and engaged board Corporate governance aligned to shareholder interests Attracting, developing and retaining strong and diverse talent Industrial-tech recruitment tightly aligned to strategy Execution of business strategy delivering consistent outperformance Enabled Aptiv to adapt and thrive in more dynamic environment S&P 500 +82% +129% Auto Peers2 +49% TOTAL SHAREHOLDER RETURN 2015 TO 20201 TSR data sourced from Capital IQ from 12/31/14 to 12/31/20 and represents a market cap weighted index of peers. Auto Peers include CON, DENSO, LEA, MGA, VALEO, VC
Proactive Portfolio Actions Since 2015 Aptiv Investor Outreach, April 2021 SMART PORTFOLIO ENHANCEMENTS HAVE POSITIONED APTIV TO THRIVE IN A MORE DYNAMIC ENVIRONMENT IPO 2011 Jun 2015 Thermal Jul 2015 Reception Systems Dec 2016 Mechatronics EXITED low growth commodity businesses, where limited opportunity for differentiation was increasingly driving price pressure ACQUISITIONS / JOINT VENTURE enhancing automated driving & data management capabilities at attractive valuations Dec 2017 Powertrain Segment Spin-off POWERTRAIN SEGMENT SPIN-OFF positioned Aptiv to better leverage brain and nervous system capabilities Jul 2015 ottomatika Nov 2017 nuTonomy Dec 2015 HellermannTyton Nov 2015 Control-Tec ACQUISITIONS increasing our scale and leverage in engineered components and presence in adjacent markets Jun 2018 KUM Oct 2018 Winchester Nov 2019 gabocom Mar 2020 Motional Automated Driving 50/50 Joint Venture with Hyundai //
Aptiv Investor Outreach, April 2021 INDUSTRIAL Outsized impact driven by decades of experience in delivering sustainable value creation and performance through cycle TECHNOLOGY Agility and creativity to thrive in dynamic end markets, that are requiring smarter, more integrated solutions INDUSTRIAL TECH Human Capital Tightly Aligned to Business Strategy ATTRACTING, DEVELOPING AND RETAINING TOP INDUSTRIAL AND EMERGING TECH TALENT TO DELIVER VISION EXPANDING DIVERSITY OF EXPERIENCE Executive hire examples since 2018
SUSTAINABILITY Active Board of Directors Engagement CORPORATE GOVERNANCE ALIGNED TO SHAREHOLDER INTERESTS WITH STRONG PARTNERSHIP BETWEEN BOARD OF DIRECTORS AND MANAGEMENT GOVERNANCE ETHICS & COMPLIANCE STRATEGY FINANCE INVESTOR SENTIMENT Product portfolio review Operational planning Long-term enterprise risks and opportunities Strategic investments Financial performance and disclosures Annual budget and long-term business plan Capital deployment Market and industry insight and assessment Investor and analyst feedback and perception Communication strategy ESG priorities Long-term environmental goals and commitments Safety and compliance Community involvement Selection and evaluation of Board members Corporate governance guidelines Compensation planning Data privacy and security Company culture DRIVE Line cases Diversity and inclusion Human capital management RISK MANAGEMENT WEEKLY UPDATES FROM OUR CEO AND SIX ADDITIONAL BOARD MEETINGS DURING COVID DIVERSITY 12 members; 42% diversity (3 gender, 2 ethnic/race) ELECTIONS Held annually LEADERSHIP Proven management track record EXPERIENCE Decades of diverse industry expertise BOARD TENURE Average board tenure ~5 years PERFORMANCE EVALUATIONS Annual assessments of Board and committees; evaluations of individual and peer performance CHARACTERISTICS OF DIRECTOR NOMINEES Aptiv Investor Outreach, April 2021
Financial Performance Drives Value Creation GROWTH PROFITABILITY SHAREHOLDER RETURN Peers2 | 120 Production | 81 Peers2 | 70 | 96 Revenue, IHS Production Adjusted EBITDA1 2015 – 2020 Total Shareholder Return (TSR)3 Peers2 | 110 EBITDA adjusted for restructuring and other special items Auto Peer group includes: CON, DENSO, LEA, MGA, VALEO, VC; Revenue and Adjusted EBITDA converted in USD. Growth, Profitability, and Total Shareholder Return data sourced from Capital IQ; TSR data from 12/31/2014 to 12/31/2020 and represents a market cap weighted index of peers. ROBUST REVENUE AND EARNINGS RELATIVE TO PEERS DRIVES CONSISTENT OUTPERFORMANCE Aptiv Investor Outreach, April 2021
Impact of COVID-19 Aptiv Investor Outreach, April 2021 UNPRECEDENTED INDUSTRY DECLINES FIRST HALF OF 2020 DUE TO COVID-19 $1,259 16.0% $1,358 2H 2020 $7,880 8% | 9% EBITDA2 EBITDA Margin OPERATING CASH FLOW REVENUE Adj Growth %1 | GoM $2.26 EARNINGS PER SHARE2 ($ millions, except per share amounts) GLOBAL VEHICLE PRODUCTION (1%) $362 7.0% $55 1H 2020 $5,186 (26%) | 10% ($0.44) (36%) 1 Revenue growth excludes impact of foreign exchange, commodities, acquisitions and divestitures 2 Adjusted for restructuring and other special items; see appendix for detail and reconciliation to US GAAP COVID IMPACT GLOBAL VEHICLE PRODUCTION (20%) 1Q production decline >(50%) 2Q production decline CUSTOMER SHUTDOWNS China: 6 week shutdown in Q1 followed by slow initial recovery NA/Europe: OEMs halted vehicle production 8 weeks in April/May; phased restarts RECESSION PLAYBOOK Approximately EBITDA breakeven at >(40%) decline in 2Q revenue
Navigating Through The Crisis Aptiv Investor Outreach, April 2021 STABILIZING OPERATIONS IMMEDIATE AND DECISIVE ACTIONS TO PROTECT EMPLOYEES, CUSTOMERS AND SHAREHOLDERS Coordinated customer response teams resulting in zero restart disruptions Effective management of supply chain disruptions FOCUS AREAS MANAGEMENT AND BOARD ACTIONS EMPLOYEE HEALTH & SAFETY Plant and facility closures at over 200 sites Implemented safety protocols and contact tracing technologies Findings from outside medical experts and their evaluation of our protocols ENHANCING FINANCIAL FLEXIBILITY Cost reduction actions including 50% CEO, 10% officer pay cuts Bonus reduction, delayed merits, suspension of retirement plan contributions Suspended dividends, share repurchases and relentless focus on capital efficiency Continued investments for growth in fastest growing product lines – Active Safety, High Voltage Electrification and Smart Vehicle Architecture™ Strong collaboration and ONE APTIV approach to solving customers toughest challenges LONG-TERM VALUE CREATION KEY 2020 RESULTS 100% SITES OPERATING WITH APTIV SAFETY PROTOCOLS $100M ANNUAL INVESTMENT IN SAFE START PROTOCOLS 2.5x YEAR-END DEBT-TO-EBITDA 10% GROWTH OVER UNDERLYING VEHICLE PRODUCTION
Proactive Shareholder Outreach Throughout 2020 CORPORATE GOVERNANCE AND COMPENSATION Executive compensation / Strategic results modifier Board composition and refreshment Board engagement and oversight on sustainability topics Board annual evaluation process INFORMED AND REINFORCED MANAGEMENT AND BOARD OF DIRECTOR DECISIONS DISCUSSION TOPICS RISK MANAGEMENT DURING THE PANDEMIC Aptiv Safety Protocols and resuming operations Board and management oversight and communication Completion and reinstatement of austerity measures SOCIAL Aptiv’s culture transformation Diversity & Inclusion; gender pay equity Attracting and retaining engineering talent Training & development SHAREHOLDER FEEDBACK ENVIRONMENTAL Environmental impact of Aptiv products Scope 3 Carbon Emissions / Science Based Targets Path to carbon neutrality Clear evidence of extraordinary execution throughout the year Company responded quickly to navigate pandemic and position itself for long-term recovery outperformance Open to and supportive of creative solutions in light of the pandemic In shareholders’ best interests to motivate and retain management Explain how Aptiv took care of employees first – investments in workplace safety, significant cash recognition awards, restoring merit increases and retirement plan contributions Board diversity increasingly incorporated into proxy voting guidelines Consider setting employee diversity targets Disclose employee diversity by management level Publish additional HR-related policies (i.e. primary care leave) Appreciate alignment of ESG targets into company strategy and mgmt. comp Board oversight on sustainability topics, including target setting and transparency in 2020 Sustainability Report Align with Task Force on Climate-related Financial Disclosures (TCFD) Set Science Based Targets and achieve net zero emissions by 2040 Aptiv Investor Outreach, April 2021
PERFORMANCE BASED Named Executive Officer Pay Mix LONG-TERM VALUE FOCUSED ACHIEVED THE RIGHT WAY Strategic Results Modifier (SRM) Component of AIP Reflects 2020 Plan Year designs Since IPO Segment performance metrics based on Operating Income and Simplified Operating Cash Flow TSR performance relative to Russel 3000 Auto Index peers GOM = Growth Over Market, or over underlying vehicle production For Executive Officers 85% Pay-At-Risk BASE PAY | 15% Incentives Aligned To Creating SHAREHOLDER VALUE 10% SRM STRATEGIC RESULTS MODIFIER + - 2020 ESG METRICS RELATED TO: TALENT & DIVERSITY Attract and retain the best CULTURE Reinforce values and behaviors of a winning team QUALITY Drive flawless launch and delivery AIP 50% | NET INC3 40% | CASH (CFBF) 10% | GOM5 ANNUAL INCENTIVE PLAN (AIP) | 16% LTIP 33.3% | NET INC 33.3% | TSR4 33.3% | RONA 75% Performance6 25% Time Based6 SRM Goals drive strategic factors LONG-TERM INCENTIVE PLAN (LTIP) | 69% Performance Based LTIP linked to business plan; strongly incentivizing commitment to outperformance Incentives Aligned to Long-Term Value1 STRONG SHAREHOLDER SUPPORT REFLECTED IN 97.8% 9-YEAR AVERAGE2 SAY-ON-PAY Aptiv Investor Outreach, April 2021 Stock Ownership Guidelines: CEO = 6x of base salary Executive Officers = 3x of base salary
Compensation Governance REFLECTS FEEDBACK FROM SHAREHOLDER OUTREACH KEY PRINCIPLES IMPLICATIONS Consider the welfare of our employees first Approved a program to provide cash recognition and restitution to ~15,000 employees (excl. NEOs/Officers) Implemented previously-approved salary increases for salaried employees, effective Sep 1, 2020 Reinstated Aptiv’s retirement plan contributions for US, Ireland, and Mexico employees, effective Jan 1, 2021 Reduced upside potential in the 2020 short-term incentive award cycle and in the 2019 and 2020 long-term incentive award cycles Cap long-term payouts at target if we do not outperform our peers Preserve value for our shareholders Compensate and reward performance and value creation Reduce pay opportunity in conjunction with adjusted goals Capped payouts at target if relative TSR is below median of TSR peer group1 for the 2019 and 2020 long-term incentive cycles Adjusted incentive awards to restore intended motivational and retentive value and preserve our pay-for-performance philosophy Management’s actions preserved and enhanced Aptiv’s financial strength during the COVID-19 pandemic and generated strong returns following the restart of our global operations – including 10% sales growth over market and achieving 49.6% TSR over 2018 through 2020. Aptiv Investor Outreach, April 2021 1 TSR Peer group reflects the Russell 3000 Auto Parts Index.
Board Discretion Restores Motivational/Retentive Impact WHILE PRESERVING VALUE FOR SHAREHOLDERS +30.9% +16.3% +37.5% 1-YEAR (2020) Auto Peers S&P 500 Data sourced from S&P Capital IQ, updated from 12/31/2019 through 12/31/20 and 12/29/2017 through 12/31/2020.; Auto Peers include market cap weighted index of: CON, LEA, VNE, Valeo, VC, Denso, MGA Data as reflected in the 2021 Proxy Statement. TSR based on average closing price in December. Peer group reflects the Russell 3000 Auto Parts Index. 49.6% PERCENTILE OF OUR TSR PEER GROUP 3-YEAR TSR 89TH MEANINGFUL COMPENSATION REDUCTIONS 65% 2018-2020 PERFORMANCE LTIP (VS. <50% UNADJUSTED) ANNUAL INCENTIVE (VS. 10% UNADJUSTED) 95% CEO/SENIOR OFFICER BASE SALARY REDUCTION FROM APRIL-AUGUST 2020 50% / 10% STRONG SHAREHOLDER VALUE2 6-MO COVID IMPACT COLLAPSED SHORT & L-TERM INCENTIVES TOTAL SHAREHOLDER RETURN1 EMPLOYEES IMPACTED BY DELAYED DISCRETIONARY BASE SALARY INCREASES 100% Aptiv Investor Outreach, April 2021
Right Plan Adjustments for More Volatile Outlook DESPITE CONTINUED END MARKET UNCERTAINTY, REDUCED MAXIMUM PAYOUT OPPORTUNITY Aptiv Investor Outreach, April 2021 Holistic Plan Changes Payout Before Adjustments1 Payout After Adjustments After Application of Further Discretion 2020 ANNUAL INCENTIVE PLAN Based on Achievement of 2H’20 Targets 10% (only GOM at target) 65% 65% (cash recognition and restitution awards to employees paid first) 2018-2020 PERFORMANCE-BASED RSUs Truncated Performance Period 2018-2019 49% (only TSR above target) 106% 95% (2018 Performance Plan tracking ~100% coming into the year) 2019-2021 PERFORMANCE-BASED RSUs Adjusted Financial Goals 2020, 2021 Reflect New Market Realities 43% (200% maximum payout) TBD (150% maximum payout, capped at 100% if relative TSR is below median) TBD 2020-2022 PERFORMANCE-BASED RSUs Adjusted Financial Goals 2020, 2021, 2022 Reflect New Market Realities 33% (200% maximum payout) TBD (150% maximum payout, capped at 100% if relative TSR is below median) TBD 1 Projected as of 12/31/2020 ≤ ≤
This presentation, as well as other statements made by Aptiv PLC (the “Company”), contain forward-looking statements that reflect, when made, the Company’s current views with respect to current events, certain investments and acquisitions and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to the Company’s operations and business environment, which may cause the actual results of the Company to be materially different from any future results. All statements that address future operating, financial or business performance or the Company’s strategies or expectations are forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: global and regional economic conditions, including conditions affecting the credit market and resulting from the United Kingdom’s exit from the European Union, commonly referred to as “Brexit”; uncertainties posed by the novel coronavirus (COVID-19) pandemic and the difficulty in predicting its future course and its impact on the global economy and the Company’s future operations; fluctuations in interest rates and foreign currency exchange rates; the cyclical nature of global automotive sales and production; the potential disruptions in the supply of and changes in the competitive environment for raw material integral to the Company’s products; the Company’s ability to maintain contracts that are critical to its operations; potential changes to beneficial free trade laws and regulations such as the United States-Mexico-Canada Agreement; the ability of the Company to integrate and realize the expected benefits of recent transactions; the ability of the Company to attract, motivate and/or retain key executives; the ability of the Company to avoid or continue to operate during a strike, or partial work stoppage or slow down by any of its unionized employees or those of its principal customers; and the ability of the Company to attract and retain customers. Additional factors are discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s filings with the Securities and Exchange Commission. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. It should be remembered that the price of the ordinary shares and any income from them can go down as well as up. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events and/or otherwise, except as may be required by law. Forward Looking Statements Aptiv Investor Outreach, April 2021
Aptiv Investor Outreach, April 2021
YoY Revenue Growth Metrics Aptiv Investor Outreach, April 2021 1H 2020 2H 2020 2020 Reported net sales % change (28%) 10% (9%) Less: foreign currency exchange and commodities (2%) 2% - % Less: divestitures and other, net - % - % - % Adjusted revenue growth (26%) 8% (9%)
Non-US GAAP Financial Metrics ($ millions) 1H 2020 2H 2020 2020 Net income attributable to Aptiv 1,206 598 1,804 Interest expense 87 77 164 Other expense (income), net 7 (7) - Income tax (benefit) expense (4) 53 49 Equity loss, net of tax 16 67 83 Net (loss) income attributable to noncontrolling interest (4) 22 18 Operating income 1,308 810 2,118 Depreciation and amortization 364 400 764 EBITDA 1,672 1,210 2,882 Restructuring 100 36 136 Other acquisition and portfolio project costs 16 7 23 Deferred compensation related to acquisitions 8 6 14 Gain on business divestitures and other transactions (1,434) - (1,434) Adjusted EBITDA 362 1,259 1,621 Aptiv Investor Outreach, April 2021
($ millions, except per share amounts) 1H 2020 2H 2020 2020 Net income attributable to ordinary shareholders 1,203 566 1,769 Mandatory convertible preferred share dividends 3 32 35 Net income attributable to Aptiv 1,206 598 1,804 Adjusting items: Restructuring 100 36 136 Other acquisition and portfolio project costs 16 7 23 Asset impairments 4 6 10 Deferred compensation related to acquisitions 8 6 14 Gain on business divestitures and other transactions (1,434) - (1,434) Debt modification costs 4 - 4 Gain on changes in fair value of equity investments - (10) (10) Tax impact of adjusting items (a) (18) (4) (22) Adjusted net income attributable to Aptiv (114) 639 525 Adjusted weighted average number of diluted shares outstanding (b) 258.59 283.02 270.70 Diluted net income per share attributable to Aptiv (c) 4.66 2.09 6.66 Adjusted net (loss) income per share (c) (0.44) 2.26 1.94 (a) Represents the income tax impacts of the adjustments made for restructuring and other special items by calculating the income tax impact of these items using the appropriate tax rate for the jurisdiction where the charges were incurred. (b) In June 2020, the Company issued $1,150 million in aggregate liquidation preference of 5.50% Mandatory Convertible Preferred Shares (the "MCPS") and received proceeds of $1,115 million, after deducting expenses and the underwriters’ discount of $35 million. Dividends on the MCPS are payable on a cumulative basis at an annual rate of 5.50% on the liquidation preference of $100 per share. Unless earlier converted, each share of MCPS will automatically convert on June 15, 2023 into between 1.0754 and 1.3173 shares of Aptiv’s ordinary shares, subject to further anti-dilution adjustments. For purposes of calculating Adjusted Net Income Per Share, the Company has excluded the anticipated MCPS cash dividends and assumed the “if-converted” method of share dilution (the incremental ordinary shares deemed outstanding applying the “if-converted” method of calculating share dilution are referred to as the “Weighted average MCPS Converted Shares” on the next slide). The Adjusted Weighted Average Number of Diluted Shares Outstanding assumes the conversion of all 11.5 million MCPS and issuance of the underlying ordinary shares applying the “if-converted” method (method already applied for U.S. GAAP purposes of calculating the weighted average number of diluted shares outstanding for the six months ended June 30, 2020 and for the year ended December 31, 2020) on a weighted average outstanding basis for all periods subsequent to issuance of the MCPS. We believe that using the “if-converted” method provides additional insight to investors on the potential impact of the MCPS once they are converted into ordinary shares no later than June 15, 2023. (c) Due to the use of the weighted average shares outstanding for each half year period for computing earnings per share, the sum of the half year per share amounts may not equal the per share amount for the year. Non-US GAAP Financial Metrics Aptiv Investor Outreach, April 2021
Shares Outstanding Aptiv Investor Outreach, April 2021 (millions) 1H 2020 2H 2020 2020 Weighted average ordinary shares outstanding, basic 256.77 270.03 263.43 Dilutive shares related to RSUs 0.25 0.62 0.44 Weighted average MCPS Converted Shares 1.57 12.37 6.83 Adjusted weighted average ordinary shares outstanding, including dilutive shares 258.59 283.02 270.70