Taking the Next Step Team Sauder Jarl Greve Nadine Raida Morten Juhl Sebastian Kersting
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 1400 1200 1000 800 600 400 200 0 318 168 321 1501 694 2015 Status Europe/ quo Korea Japan Total 2015 America Korea Japan 2019 EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 2
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
as a result main revenue comes from Europe 70% 16% 14% Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 4
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
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
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
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
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
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
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
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
Expand Distribution in Japan CBS 13
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
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
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
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
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
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
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
Expand Distribution in Japan CBS 21
Due to limited capacity expansion of production facilities is needed Expand Distribution in Japan CBS 22
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
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
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
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
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
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
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% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Production Warehouse Transfer of volumes Local sourcing for production Source: Company material, Latour EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 29
Expand Distribution in Japan Initiate Production in India CBS 30
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
Nord-lock can increase revenue to 1.5 BSEK in 2019 Nord-lock can gain more than 300m SEK in additional revenue in 2019 15% 5-7% 30% 400 350 300 250 Best Market Share Market growth EBIT margin 200 150 100 50 0 2016 2017 2018 2019 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
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 2019 1600 mse K 1400 1200 1000 800 600 400 200 0 318 168 321 1501 694 2015 Status Europe/ quo Korea Japan Total 2015 America Korea Japan 2019 10% growth in status quo growth 94m in profits in Japan 50m in profits in Korea EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 33
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
In order to succeed Nord-Lock must start immediately in finding land and financial advisory 2016 2017 2018 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 Q4 2016 2 3 for production by Q3 2016 Hire skilled labor and managers for Indian facility by Q1 2018 EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 35
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
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
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 1400 1200 1000 800 600 400 200 0 318 168 321 1501 694 2015 Status Europe/ quo Korea Japan Total 2015 America Korea Japan 2019 EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS 38
Questions and Answers Team Suader Jarl Greve Nadine Raida Morten Juhl Sebastian Kersting
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)
Key Markets % of revenue 47% 16% 12% Germany USA Scandinavia APPENDIX CBS 41
Evaluation of Indian Cities Mumbai Delhi Bangalore Kolkata Education Infrastructure Leading research centers Costs Location Economic APPENDIX CBS 42
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
Capacity Calculations 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 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 103 183 271 138 0 0 0 0 0 0 Europe and North America 694 763 839 923 1015 1066 1120 1176 1234 1296 Total 797 946 1110 1061 1015 1066 1120 1176 1234 1296 % 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 0 0 68 321 485 582 699 839 1006 1208 Europe and North America 0 0 0 0 0 0 0 0 0 0 Total 0 0 68 321 485 582 699 839 1006 1208 % 0% 0% 6% 23% 32% 35% 38% 42% 45% 48% Asia 103 183 338 459 485 582 699 839 1006 1208 Europe and North America 694 763 839 923 1015 1066 1120 1176 1234 1296 Total Total 797 946 1178 1382 1501 1649 1818 2014 2241 2504 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
Risk analysis Risk Likelihood Impact Strategic importance Mitigation Lack of skilled labor in Mumbai 3 5 15 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 2 4 8 Focus on understanding customer needs and continually focus on branding NL to high-end and niche segments 1 8 8 Focus on aligning interests and suggest raising debt to lower cost of capital Loss of revenue in home markets 1 6 6 Maintain high level of product knowledge and differentiation and focus on developing client relationships Resistance from domestic production facilities 3 1 3 Communicate the internationalization strategy to employees and understand key stakeholder motives Source: Team Sauder analysis Appendix CBS 45
Geographical assessment of potential expansion Country Market Value Share of overall revenue Growth Market share Customer suitability Germany 350 47% 7% 14% 2 US/Canada 122 16% 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
Distribution companies Japan mjpy Main area Products Suggested investment No. Stores in Japan Market cap. Kobayashi Metals Distribution Screws Acquisition 8 5461 Sanko Techno Co Develop/manufactur ing Anchors Joint venture - 7206 Techno Associe Co Distribution Broad Only fastener product division - 20457 JTEKT Source Automotive/Machin Joint venture Automotive ery/bearings Company website, reports, morningstar and bloomberg 3 543766 APPENDIX CBS 47
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 5461 864 399 6.3x 13.7x Sanko Techno Co 7206 1817 1511 4.0x 4.8x Techno Associe Co 20457 3742 2370 5.5x 8.6x JTEKT 543766 126632 74155 4.3x 7.3x Source: Company website, reports, morningstar and bloomberg APPENDIX CBS 48
Cost and Capital for Investment Latour Holding Debt 5195 Equity 16080 D/E 32% Leverage ratio 24% 0-100 -200-300 -400-500 -600-700 -800 2016 2017 2018 2019 Cost of investment 2016 2017 2018 2019 Acquisition 410 50 Production facility 300 200 100 50 Post merger integration 20 20 People 10 10 10 Total 710 260 130 80 APPENDIX CBS 49
Revenue Projections Base case msek 2015 2016 2017 2018 2019 Turnover 797 877 964 1061 1167 Status Quo Japan/Korea 103 114 125 138 151 Turnover from Europe/North America 694 763 839 923 1015 Post Turnover 797 946 1071 1250 1404 Operating profit 236 280 317 370 416 EBIT margin 30% Market size Growth: 7% Korea 5% Japan Korea 852 912 976 1044 1117 Japan 1742 1830 1921 2017 2118 Market share 6/3% 10/5% 10/7% 12/10% 12/12% Korea 51 91 98 125 134 Japan 52 91 134 202 254 APPENDIX CBS 50
Sensitivity analysis Best case msek 2015 2016 2017 2018 2019 Turnover 797 877 964 1061 1167 Status Quo Japan/Korea 103 114 125 138 151 Turnover from Europe/North America 694 763 839 923 1015 Post Turnover 797 946 1178 1382 1501 Operating profit 236 280 349 409 444 EBIT margin 30% Market size Growth: 7% Korea 5% Japan Korea 852 912 976 1044 1117 Japan 1742 1830 1921 2017 2118 Market share 6/3% 10/5% 15/10% 15/15% 15/15% Korea 51 91 146 157 168 Japan 52 91 192 303 318 APPENDIX CBS 51
Sensitivity analysis Worst msek 2015 2016 2017 2018 2019 Turnover 797 877 964 1061 1167 Status Quo Japan/Korea 103 114 125 138 151 Turnover from Europe/North America 694 763 839 923 1015 Post Turnover 797 918 1052 1169 1275 Operating profit 236 272 311 346 378 EBIT margin 30% Market size Growth: 7% Korea 5% Japan Korea 852 912 976 1044 1117 Japan 1742 1830 1921 2017 2118 Market share 6/3% 7/5% 8/7% 10/7% 10/7% Korea 51 64 78 104 112 Japan 52 91 134 141 148 APPENDIX CBS 52