innova glo bus presentation

InnovaTen Year Review

Simply Innovation ®

Innova In The News…

InnovaInno

va

InnovaSimply Innovation ®

Global Operations Summary Year 15

North America

Retailer DemandEL: 875,000MF: 135,000

Market ShareEL: 32.9%MF: 21.8%

Latin America

Units SoldEL: 801,000MF: 95,000

Market ShareEL: 34.4%MF: 20.6%

Europe/Africa

Retailer DemandEL: 933,000MF: 93,000

Market ShareEL: 31.5%MF: 16.6%

Asia Pacific

Retailer DemandEL: 737,000MF: 76,000

Market ShareEL: 29.6%MF: 14.6%Plant Assembly

Entry Level: 3,220,000Multi Level: 399,000

In-house: 3,604,000Outsourced: 15,000

InnovaSimply Innovation ®

Net Revenues

5 6 7 8 9 10 11 12 13 14 15 $-

$100

$200

$300

$400

$500

$600

$700

$200 $168

$218 $208

$303

$388

$490 $543

$595 $587 $538

($ thousands)

Simply Innovation ®Innova

Earnings Per Share

6 7 8 9 10 11 12 13 14 15 $-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Actual EPSInvestor Expectation

InnovaSimply Innovation ®

Return on Equity

6 7 8 9 10 11 12 13 14 150.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

18.5%

28.3%

22.4%

35.7% 36.3%

55.9%

47.0%

39.4%

48.7%

40.9%

Actual ROEInvestor Expectation

Simply Innovation ®Innova

Stock Price

5 6 7 8 9 10 11 12 13 14 15 $-

$50.00

$100.00

$150.00

$200.00

$250.00

$30.00 $31.20 $45.68 $41.75

$61.13

$89.50

$131.04

$191.85

$160.11

$201.40

$157.24

Stock PriceInvestor Expectation

Simply Innovation ®Innova

Credit Rating

Simply Innovation ®Innova

Image Rating

6 7 8 9 10 11 12 13 14 1560

65

70

75

80

85

90

95

100

105

InnovaInvestor Expectation

Simply Innovation ®Innova

Strategic Vision

Innova will build a loyal customer base in two strategic target markets by providing a good-quality entry-level camera at a price lower than competitors. We will provide an excellent-quality multi-feature camera for consumers who are looking for nothing but the best.

 Our overriding goal is to maximize shareholder value.

We believe that Innova will perform its best if its employees are highly valued and appreciated. Innova will generate sustained competitive advantage through long-term investments in above-average employee compensation, productivity increases, and research & development.

InnovaSimply Innovation ®

Performance Targets

10 11 12 13 14 15 16* 17* $-

$50

$100

$150

$200

$250

$5.74 $10.19 $10.85 $8.90 $10.60 $8.75 $10.00 $11.50

$89.50

$131.04

$191.85

$160.11

$201.40

$157.24

$167.00 $180.00

EPSStock Price

*Years 16-17 estimated

Innova Forecasts: Stock Price and EPS

Innova Forecasts: Return on Equity Innova Forecasts: Image Rating

10 11 12 13 14 15 16* 17*30%

35%

40%

45%

50%

55%

60%

36.3%

55.9%

47.0%

39.4%

48.7%

40.9%

40.0% 40.0%

*Years 16-17 estimated

10 11 12 13 14 15 16* 17*75

80

85

90

95

100

105

83

88

95

100

95

91

95 95

*Years 16-17 estimated

InnovaSimply Innovation ®

Entry Level Strategy

Vision

Goal

Strategy

Foundation

Continue to be the LOWEST cost digital

camera in every market we serve

Low Cost EfficiencyGlobal

PresenceStrong

Cash flow

High Margins Sustainable Growth

SIMPLICITY COMPETITIVE QUALITY

MODEST DESIGN

LOW MARKET PRICING

Year 6-9• Best cost strategy

Strategy Evolution-Year 10-15• Low cost strategy

InnovaSimply Innovation ®

Multi Level Strategy

Vision

Goal

Strategy

Foundation

InnovaSimply Innovation ®

Production Strategy- Workstation Capacity

• We committed to assembling as many units as possible in-house

• We maintained above-average workforce compensation for most of the simulation (through year 13)

• Utilized temporary employees during the peak production season, Quarter 3

Number of Installed Workstations

Workstation Utilization Rates

6 7 8 9 10 11 12 13 14 15100

150

200

250

300

350

400

Innova

Industry Average

6 7 8 9 10 11 12 13 14 150%

20%

40%

60%

80%

100%

120%

Off-Peak Seasons (Quarters 1,2,4)Peak Season (Quarter 3)

Wor

ksta

tion

Utiliz

ation

Per

cent

InnovaSimply Innovation ®

Production Strategy- Labor & Workforce

• Prioritized in-house production over outsourcing

• Completed permanent hiring at the beginning of each year

• Outsourcing was only necessary in rare instances when actual demand outperformed management’s projected demand

• Maintained accurate forecasting

Total PAT Compensation

Production Costs, In-House vs. Outsourced

6 7 8 9 10 11 12 13 14 15 $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Entry-Level In-House Produc-tionEntry-Level OutsourcingMulti-Feature In-House ProductionMulti-Feature Outsourcing

InnovaSimply Innovation ®

6 7 8 9 10 11 12 13 14 15$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

Innova Industry AverageIndustry High Industry Low

Financial Strategy

• Utilized positive cash flows – Reinvest in the business – Reward our shareholders

6 7 8 9 10 11 12 13 14 15 $-

$1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00

Annual Dividend (per share)

6 7 8 9 10 11 12 13 14 150%

10%20%30%40%50%60%70%80%90%

100%

Payout Ratio

Perc

ent o

f EPS

InnovaSimply Innovation ®

Financial Strategy• Use of debt paralleled policy on dividends

– Long Run: Pay down debt in order to better reward shareholders

– Short Run: Early years carried debt on books in order to better invest in the company’s future

6 7 8 9 10 11 12 13 14 150%

20%

40%

60%

80%

100%

120%Debt : Equity Ratios

Debt %Equity %

6 7 8 9 10 11 12 13 14 150

2

4

6

8

Debt Payoff Capability

InnovaIndustry Average

InnovaSimply Innovation ®

Entry Level Competition• Strongest competitor during the last two

years was Company C– Changed their strategy in year fourteen

to become a low-cost provider, placing themselves in direct fierce competition with Innova.

• Our second closest competitor was Company E – Had a best cost strategy – In certain years, Company E threatened to

steal demand and market share – Never threatened to surpass Innova’s

performance as a whole

InnovaSimply Innovation ®

Multi Level Competition

• Companies C and E were our strongest competitors– Pursued a differentiation strategy

• Innova stayed ahead of the competition – Quality– Set standard as the industry leader

• Successfully reached its strategic goal of designing a camera for consumers who are looking for “nothing but the best,” – Companies C and E became market

followers and provided a camera for people who were looking for “almost the best” quality at a slightly lower cost.

InnovaSimply Innovation ®

Actions To Take- Entry Level

• Continue to reduce our costs to keep competitive edge

• Strive to offer the lowest-price entry-level camera and be the low-cost leader– Investors expect an image rating of 70 or

above• Will not lower the quality of our cameras below 2

stars• Will not jeopardize our brand reputation to win a

cutthroat rivalry– Constant fierce price wars can result in the

destruction of the entire industry– Not willing to sacrifice long-term viability in

order to achieve by destruction

InnovaSimply Innovation ®

Actions To Take- Multi Featured Level

• “Stay the course” • Continue to assemble the highest level

quality cameras• Maintain the position of industry leader

though continuous investment in research & development– Remaining flexible and innovative

“These investments will give us a first-mover advantage in whatever changes affect the industry’s shifts in demand.”

-Dan Wesolowski CEO

InnovaSimply Innovation ®

Lessons Learned

• Demand and Market Share– In year eight we realized how important it was

to focus on decisions that would increase our demand

– Found that the elasticity of demand in the entry-level segment is above 1.0, which means that total revenues increase when price is lower and that consumers in our target markets were fairly sensitive to price

• Technical Support– The more money we would invest in tech

support, up to a certain extent, communicated to customers how much Innova stands behind its products.

– This made a great impact in our product demand

– From Year 9 forward, we concentrated meticulously on the precise amount to invest in tech support

– Over time, we increased quarterly tech support per unit from $3.00 to around $5.00

InnovaSimply Innovation ®

Lessons Learned

• The Human Factor– Above-average employee compensation resulted

in a higher quality of work • Contributed to our profit margin by lowering the

warranty claim rates and production costs • Savings allowed us to maintain the lowest price in

the entry-level segment– Improved employee dependability

• Lowering absenteeism• Delivering their best work quality on a consistent

basis. – Innova’s human resource policies indirectly

resulted in high customer loyalty and a high company image

InnovaSimply Innovation ®

Lessons Learned

• Production Capacity– Took a risk by expanding production capacity

• But if successful – like Innova’s was – the rewards can be high

– Recommendation to other companies is that they should outsource processes that they perform at an average or below-average level.

• Those processes which they do well – their core competencies – should remain in-house.

• Foreign Exchange Rates– Affected our company’s profits more than we

expected• We underestimated the sizable amount of the

effect

InnovaSimply Innovation ®

Questions?

Simply Innovation ®Innova