Taking the Next Step Team Sauder. Jarl Greve Nadine Raida Morten Juhl Sebastian Kersting

Transcription

1 Taking the Next Step Team Sauder Jarl Greve Nadine Raida Morten Juhl Sebastian Kersting

2 By expanding distribution and initiate production in India Nord- Lock can gain 1.5 BSEK by 2019 Revenue Introducing 2 main initiatives will bring you 1.5 BSEK in revenue by 2019 Expand Distribution in Japan Initiate Production in India 1600 mse K Status Europe/ quo Korea Japan Total 2015 America Korea Japan 2019 EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 2

3 Nord-Lock has a wide global presence but has mainly focused on the European region Sales office Production Plant Warehouse Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 3

4 as a result main revenue comes from Europe 70% 16% 14% Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 4

5 Competition, limited capacity and decreasing growth in key markets constitute challenges for Nord-Lock Challenges Nord-Lock are facing both internal and external challenges Capacity Slow Growth Competition 70% utilization 2-3% in mature markets Growing rapidly Revenue growth has decreased to 10% and limited options for expansion Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 5

6 Opportunities but global opportunities and growth in Asia open up for Nord-Lock to regain growth but also several opportunities Global Global presence, regional focus Growth in Asia Low cost production 5-7% in high-end markets In Asia and E. Europe How can Nord-Lock utilize its capabilities and regain high growth? Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 6

7 LOW Impact HIGH Several options have been explored IMPACT Size Market expansion Price Sensivity New premium product Growth Profitability Feasibility B2C segment Organizational fit Low cost products Risk Competition LOW Feasibility HIGH EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 7

8 but based on feasibility and impact a market expansion is found to be the best solution Impact HIGH LOW IMPACT Size Market expansion Price Sensivity New premium product Growth Profitability Feasibility B2C segment Organizational fit Low cost products Risk Competition LOW Feasibility HIGH EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 8

9 Of the countries Nord-lock is active within the Asian economies have most market potential and growth MARKET GROWTH HIGH LOW China Korea MARKET POTENTIAL Japan PRIORITIZE Profitability Scandi Organisational fit US/ Ca EU rest MAINTAIN Current market share DE Market size LOW MARKET POTENTIAL HIGH EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 9

10 Due to favorable industries Japan and South Korea should be the focus for Nord-Lock China Japan South Korea 9% growth 5% growth 7% growth Automotive, Agriculture Transportation, Offshore Transportation, Offshore Only present through 3 rd party Existing sales office Excessive distribution Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 10

11 Of the countries Nord-lock is active within the Asian economies have most market potential and growth MARKET GROWTH HIGH LOW China Korea MARKET POTENTIAL Japan PRIORITIZE Profitability Scandi Organisational fit DE US/ Ca EU rest MAINTAIN Current market share Market size LOW MARKET POTENTIAL HIGH EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 11

12 and local competitors in Japan and South Korea do not threaten Nord-Locks position in the market Price Low High Premium Position High Purchase Price Long life cycle Low High Source: Market Line Safety EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 12

13 Expand Distribution in Japan CBS 13

14 Nord-lock s entry strategy must take capabilities, level of protection and ability to control into account Parameter Acquisition Joint Venture Greenfield Licensing Local knowledge NL Capabilities Protection of knowhow Control EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 14

15 Nord-lock s entry strategy must take capabilities, level of protection and ability to control into account Parameter Acquisition Joint Venture Greenfield Licensing Local knowledge NL Capabilities Protection of knowhow Control EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 15

16 The 4 main Japanese distributers in this segment are all possible targets Company fit Techno Associe Co JTEKT Large targets Mature companies Kobayashi Metals Financial impact Broad targets Sanko Techno Co Ease of implementation EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 16

17 The 4 main Japanese distributers in this segment are all possible targets Company fit 1 Advantages Experience 2 Similarity of products Real Large time targets data Customer Journey Mature companies Kobayashi Metals 3 Warehouse facilities Financial impact Low er prices Loyalty Program Broad targets Collaborations Acquire Arriva Ease of implementation 4 5 Disadvantages Non-core business units High P/E EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 17

18 Kobayashi s valuation is based on traded peers and previous transactions in the industry Comparable peers Kobayashi Metals Value Previous transactions EV/EBITDA EV/EBITDA EV/EBIT Avg. Premium Implied value 410 million SEK Source: Thomsen Reuter, Bloomberg, Morningstar, Company websites EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 18

19 Nord-lock must integrate Kobayashi with existing Japanese offices to achieve synergies within revenue and cost Important synergies Key Decisions Secure revenue streams Restructure management Process optimization Cost reduction Current Nord-lock sales office Japan Integrate IT systems Kobayashi Metals Distribution Sales Warehousing EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 19

20 After acquiring Kobayashi Nord-lock should focus on 3 key areas to ensure successful post-merger integration Focus KPI Employee satisfaction Employee turnover rate Customer attrition Lock-in Customer churn rate Supplier relations Long term contracts EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 20

21 Expand Distribution in Japan CBS 21

22 Due to limited capacity expansion of production facilities is needed Expand Distribution in Japan CBS 22

23 Based on monetary and human factors the different options have been explored Sweden Eastern Europe China Japan/Korea India Investment Skilled labor Labor costs ROI Risk Small Large Source: Dezan Shira & Associates EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 23

24 India is the best option due to low cost production while still maintaining a high skill level Sweden Eastern Europe China Japan/Korea India Investment Skilled labor Labor costs ROI Risk Small Large Source: Dezan Shira & Associates EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 24

25 IP protection and control are main factors in favor of choosing WFOE Parameter WFOE JV Licensing IP protection Quality control Control EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 25

26 Nord-Lock should invest in production facilities in Mumbai 1 Highly educated and skilled labor force 2 Two major ports, extensive road network as well as railways 3 Leading research centers and institutions in energy and offshore 4 Fair average salary level 5 Kamathipura bolt industry manufacturing area 6 GDP growth of 7.6% in 2015 Source: Dezan Shira & Associates EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 26

27 Setting up production facilities in Mumbai requires people, sourcing and an assessment of capacity Mumbai People Capacity Sourcing EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 27

28 In order to set up facility in India people and strong organizational structure is key 1 executive 5 managers 44 employees Research planning Evaluation of research Testing 5 people Customer survey Cost performance Supplier performance 5 people Production Equipment Production planning 22 people Machinery Maintenance Lean 7 people Statistical control Failure testing Quality management 5 people EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 28

29 By initiating production to India Nord-Lock can increase capacity and utilize local sourcing Capacity Sourcing 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Sweden India 0% Production Warehouse Transfer of volumes Local sourcing for production Source: Company material, Latour EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 29

30 Expand Distribution in Japan Initiate Production in India CBS 30

31 Entering into Korea and Japan will give Nord-lock a foothold in Asia and an option to expand Vision Gaining a foothold in Asia will give future opportunities for Nord-lock 1 Expand market position in China 2 Enter into the Indian market 3 Move entire production to LCC Time EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 31

32 Nord-lock can increase revenue to 1.5 BSEK in 2019 Nord-lock can gain more than 300m SEK in additional revenue in % 5-7% 30% Best Market Share Market growth EBIT margin Base Worst Assumptions: 12% market share in both Japan and Korea Assumptions: 10% & 7% market share in Korea and Japan, respectively EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 32

33 This suggestion will give Nord-lock not only additional revenue of up to 485m but sustainable growth markets Revenue Nord-lock can create additional revenue of up to 485m in mse K Status Europe/ quo Korea Japan Total 2015 America Korea Japan % growth in status quo growth 94m in profits in Japan 50m in profits in Korea EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 33

34 Low Liklihood High Expanding in Asia involves some important risk factors that Nord-lock must address beforehand Issues A Issue Lack of skilled labor in Mumbai Mitigation Implement quality training B B Inability to obtain market share Focus on quality and branding Low Impact A C High C Loss in home markets Continuous improvement of qualty EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 34

35 In order to succeed Nord-Lock must start immediately in finding land and financial advisory Hire financial advisor ACQUISITION Acquire Kobayashi Metals Post-merger integration Acquire land PRODUCTION FACILITY Build production plant Hire employees to manage and work at facility Must win battles Acquire distribution chain in Acquire land in Kamathipura 1 Japan by Q for production by Q Hire skilled labor and managers for Indian facility by Q EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 35

36 Currently Nord-Lock has global presence but regional focus Sales office Production Plant Warehouse Source: Company Material, Company Website EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 36

37 By expanding distribution and production in Asia Nord-Lock can exploit being a global company Sales office Production Plant Warehouse Source: Company Material, Company Website EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 37

38 By expanding distribution and initiate production in India Nord- Lock can gain 1.5 BSEK Revenue Introducing 2 main initiatives will bring you 1.5 BSEK in revenue by 2019 Expand Distribution in Japan Initiate Production in India 1600 mse K Status Europe/ quo Korea Japan Total 2015 America Korea Japan 2019 EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 38

39 Questions and Answers Team Suader Jarl Greve Nadine Raida Morten Juhl Sebastian Kersting

40 Insights Solution Impact Appendix 2: Executive Summary 3: Worldwide presence 4: Revenue from geographies 5: Challenges 6: Opportunities 7: Options 8: Chosen option 9: Ranking of countries 10: China, Japan, South Korea 12: Positioning 15: Entry strategy 17: Choosing Japanese distributor 18: Kobayashi s valuation 19: Integrate with existing offices 20: Post-merger integration 24: Ranking of countries for production 25: WFOE, JV or licensing? 26: Invest in Mumbai 27: What is required in Mumbai? 28: People needed 29: Capacity and sourcing 31: Foothold in Asia 32: Revenue increase 33: Sustainable growth markets 34: Risks 35: Implementation 36: Europe focus 37: Enhanced focus 38: Synthesis 41: Key markets 42: Evaluation of Indian cities 43: Pros and cons of WHOE, JV and licensing 44: Capacity calculations 45: Risk analysis 46: Geographical assessment of potential expansion 47: Distribution companies in Japan 48: Valuation of acquisition target 49: Leverage ratio 50: Revenue projections 51: Sensitivity analysis (1) 52: Sensitivity analysis (2)

41 Key Markets % of revenue 47% 16% 12% Germany USA Scandinavia APPENDIX CBS 41

42 Evaluation of Indian Cities Mumbai Delhi Bangalore Kolkata Education Infrastructure Leading research centers Costs Location Economic APPENDIX CBS 42

43 Pros and cons of investment structures Structure type Pros Cons Licensing Cost effective route to getting a product to market It is a low risk to break into a set market Lose control of own product Many products do not get licensed Joint Venture Entering industries that by law require a local partner Leveraging a partner s existing facilities, w orkforce, sales/distribution channels Split profits Less management control than a WFOE Technology transfer/ip risks Wholly Foreign-owned Enterprise Greater freedom in business activities 100% ow nership and management control Registered capital requirement Lengthy establishment process APPENDIX CBS 43

44 Capacity Calculations Asia % 100% 100% 80% 30% 0% 0% 0% 0% 0% 0% Europe and North America % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Sweden Asia Europe and North America Total % 100% 100% 94% 77% 68% 65% 62% 58% 55% 52% Asia % 0% 0% 20% 70% 100% 100% 100% 100% 100% 100% Europe and North America % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% India Asia Europe and North America Total % 0% 0% 6% 23% 32% 35% 38% 42% 45% 48% Asia Europe and North America Total Total Asia % 13% 19% 29% 33% 32% 35% 38% 42% 45% 48% Europe and North America % 87% 81% 71% 67% 68% 65% 62% 58% 55% 52% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% APPENDIX CBS 44

45 Risk analysis Risk Likelihood Impact Strategic importance Mitigation Lack of skilled labor in Mumbai Implement quality training to ensure understanding and awareness of the product. Inability to obtain market share in Korea and Japan Resistance from owner Latour Holding Company Focus on understanding customer needs and continually focus on branding NL to high-end and niche segments Focus on aligning interests and suggest raising debt to lower cost of capital Loss of revenue in home markets Maintain high level of product knowledge and differentiation and focus on developing client relationships Resistance from domestic production facilities Communicate the internationalization strategy to employees and understand key stakeholder motives Source: Team Sauder analysis Appendix CBS 45

46 Geographical assessment of potential expansion Country Market Value Share of overall revenue Growth Market share Customer suitability Germany % 7% 14% 2 US/Canada % 3% 3% 3 Den, Sve and Nor 58 8% 4% 29% 2 Japan 52 7% 5% 3% 3 Korea 51 7% 7% 6% 3 Finland 26 4% 4% 69% 3 Italy 15 2% 3% 4% 1 Spain 14 2% 2% 3% 0 France 14 2% 4% 6% 1 Benelux 14 2% 2% 7% 2 China 13 2% 9% 1% 0 UK 13 2% 3% 3% 1 APPENDIX CBS 46

47 Distribution companies Japan mjpy Main area Products Suggested investment No. Stores in Japan Market cap. Kobayashi Metals Distribution Screws Acquisition Sanko Techno Co Develop/manufactur ing Anchors Joint venture Techno Associe Co Distribution Broad Only fastener product division JTEKT Source Automotive/Machin Joint venture Automotive ery/bearings Company website, reports, morningstar and bloomberg APPENDIX CBS 47

48 Valuation of acquisition target Multiples EV/EBITDA EV/EBIT Kobayashi 6,3x 13,7x Sanko Techno Co 4,0x 4,8x Techno Associe Co 5,5x 8,6x JTEKT 4,3x 7,3x Max 6,3x 13,7x Mean 5,0x 8,6x Median 4,9x 8,0x Min 4,0x 4,8x Previous transactions EV/EBITDA Premium Industrials 9,2x 15,2% Materials 12,9x 16,1% Mean 11,05x 15,7% Source : Thomsen Reuters mjpy Market cap EBITDA EBIT EV/EBITDA EV/EBIT Kobayashi Metals x 13.7x Sanko Techno Co x 4.8x Techno Associe Co x 8.6x JTEKT x 7.3x Source: Company website, reports, morningstar and bloomberg APPENDIX CBS 48

49 Cost and Capital for Investment Latour Holding Debt 5195 Equity D/E 32% Leverage ratio 24% Cost of investment Acquisition Production facility Post merger integration People Total APPENDIX CBS 49

50 Revenue Projections Base case msek Turnover Status Quo Japan/Korea Turnover from Europe/North America Post Turnover Operating profit EBIT margin 30% Market size Growth: 7% Korea 5% Japan Korea Japan Market share 6/3% 10/5% 10/7% 12/10% 12/12% Korea Japan APPENDIX CBS 50

51 Sensitivity analysis Best case msek Turnover Status Quo Japan/Korea Turnover from Europe/North America Post Turnover Operating profit EBIT margin 30% Market size Growth: 7% Korea 5% Japan Korea Japan Market share 6/3% 10/5% 15/10% 15/15% 15/15% Korea Japan APPENDIX CBS 51

52 Sensitivity analysis Worst msek Turnover Status Quo Japan/Korea Turnover from Europe/North America Post Turnover Operating profit EBIT margin 30% Market size Growth: 7% Korea 5% Japan Korea Japan Market share 6/3% 7/5% 8/7% 10/7% 10/7% Korea Japan APPENDIX CBS 52