financial results for second quarter fiscal year 2012 ......casio dell kyocera microsoft motorola...
TRANSCRIPT
2012 Investor & Analyst Day Paul Read, CFO
May 31st, 2012
Reduced
Volatility
Value
Creation
Margin
Expansion
Flextronics Transformation
Increased
Predictability
Reduced
Volatility
Value
Creation
Margin
Expansion
Flextronics Transformation
Increased
Predictability
Balanced Product Portfolio FY13E
Mobility 15%
Computing 8%
Consumer 7%
Server / Storage
9%
Telecom 18%
Networking 18%
Energy 5%
Equip & Auto
4%
Medical 5%
Automotive 4%
70 / 30 Mix
FY13E
Total Flex
$26 - $27
Billion
Emerging
Solutions
4%
INS
~ 45%
HRS
~ 10%
HVS
~ 30%
IE&I
~ 15%
Aero / Defense 1%
Customer Transformation Provides Greater Diversification
~35%
FY07
Top 10
customers
~65% ~45%
FY12
Top 10
customers
~55% ~55%
FY13E
Top 10
customers
FY07 Top 10
Ericsson
Nortel
Xerox
Hewlett-Packard
Casio
Dell
Kyocera
Microsoft
Motorola
Sony-Ericsson
FY13E Top 10
Alcatel Lucent
Cisco
Ericsson
Ford
Huawei Technologies
Hewlett-Packard
Apple
Lenovo
Microsoft
RIM
HVS
Low Vol/
High Mix
HVS
• Q4 FY12 was the first quarter
without a 10%+ customer in
3 years
• FY13E is not expected to have
a 10%+ customer
Customer Transformation
Hybrid
Customers are in alphabetical order within respective groupings
~45%
Revenue Revenue Revenue
Low Vol/
High Mix
Reduced
Volatility
Value
Creation
Margin
Expansion
Flextronics Transformation
Increased
Predictability
A More Predictable Revenue Stream
70 / 30 Mix
40% 42%
61% 70% 70% 70%
60%
58%
39% 30% 30%
30%
FY02 FY07 FY12 FY13E FY14E FY15E
Non-HVS HVS
$26-$27B
$28-$30B
$31-$33B
$29B
$19B
$13B
40% 42%
61% 60%
58%
39%
FY02 FY07 FY12
$29B
$19B
$13B
HVS Low Volume / High Mix
10% CAGR
• Balanced product portfolio
• Enhanced customer diversification
• Unmatched breadth and scale
which provides access to new
markets
• The leader in low volume / high mix
businesses ($17.8 billion in FY12)
Increased Predictability
HVS Low Volume / High Mix
Earnings Quality – Operating Profit and EPS Targets
Low Vol / High Mix
Operating Profit
~85%
HVS
~15%
FY13E Operating Profit
Longer product life cycles
Less forecast variability
Reduced competition
Higher margins
$0.88 $0.84 $0.77
$0.70
$1.00 - $1.10
FY11 FY12 FY13E FY14E FY15E
Adj EPS GAAP EPS
$0.88 - $0.98
+25% +15% +10%
17% CAGR
Reduced
Volatility
Value
Creation
Margin
Expansion
Flextronics Transformation
Increased
Predictability
45%
23%
17%
15%
85% of FY13E
Operating Profit
from
Low Vol / High Mix
More Predictable Operating Margin Profile – FY13 Targets
INS
3% - 4%
HRS
5% - 7%
HVS
2%+
IE&I
4% - 6%
Operating Margin Expansion Framework
~3.0% 70/30
Transition
Volume
$6.6 Billion
Revenue/Qtr
+35 bps
+15 bps
3.5%
• Components business at 4%+
operating profit
• $6.6 billion+ in revenue increases
factory utilization and operating
expense leverage
Margin Expansion Levers 3.5%+
Adjusted Operating Margin
June Qtr
FY13E
$6.1
Billion
Guidance
(mid-pt)
Target
Reduced
Volatility
Value
Creation
Margin
Expansion
Flextronics Transformation
Increased
Predictability
Creating Value Through Strong Free Cash Flow Generation
$845 Million
$3.0 Billion
$3.0 - $4.0
Billion
Strong Free Cash Flow
FY03 - FY07
FY13E - FY17E
FY08 - FY12
Target
• LTM free cash flow yield of 9%
• ROIC 20%+
• WACC of 8.9%
• Significant excess cash generation
Value Creation
• Net income growth
• Working capital at 6-8% of revenue
• Disciplined capex spend < depreciation
• Infrastructure capacity for $40 billion
revenue run rate
Free Cash Flow Levers
Industry Leading Free Cash Flow Generation
$210 $315
$559
$900 $1,022
FLEX
FLEX Generated $3.0 Billion+
Free Cash Flow* In Last 5 Years
FY08 - FY12 ($M)
51% $3.1 billion
49% $3.0 billion
*Source: Factset and Flextronics [free cash flow = net operating cash flow – capex + sale of fixed assets & businesses]
$3,089
FLEX North American
EMS Competitors
Capital Structure Management - Primary Use of Cash
Acquisitions
23%
Share
Buyback
26% Debt
Paid
Down
11%
Capex
40%
Acquisitions
~25%
Excess Cash
~35%
Capex
~40%
FY08 – FY12
FY13E & Forward
• Growth oriented capex
• Strategic acquisitions
• Managing optimal debt levels
• Share repurchase / dividends
Capital Allocation Priorities
Components 33%
Mechanicals 25%
Assembly 42%
FY13E Growth Capex
Disciplined Capital Expenditures
Capex
Growth 60%
Growth 55 - 65%
Maintenance 25%
Maintenance 25 - 30%
Infra. Support 15%
Infra. Support
10 - 15%
$388M
$350M - $400M
Target
FY12
FY13E
• Focus on disciplined growth investments
• Targeted capex spend < depreciation
• Risk adjusted capital investments
Capex Investments
Share Repurchase from FY08 to Today
$260M
$400M
$510M
835 810 813 757
684
-65
85
235
385
535
685
835
0
100
200
300
400
500
600
700
FY08 FY09 FY10 FY11 FY12
Shares
Outstanding
82M Shares
Repurchased
65M Shares
Repurchased
30M Shares
Repurchased
$8.73
Avg. Price
$6.12
Avg. Price
$6.24
Avg. Price
Last 5 Years, We Have Repurchased…
Over 177 Million Shares
~ $1.2 Billion in Stock
21% of Shares Outstanding
Strengthened Our Capital Structure
• Reduced net debt by ~$1 billion
• Improved debt to EBITDA ratio by 30%
• Maintained liquidity (cash + revolver) at over $2.8 billion
Since FY08
Strengthened Our Capital Structure
2.7x 2.5x
2.3x
1.8x 1.9x 1.7x
1.5x 1.3x
FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Debt / EBITDA
Strong Liquidity Position
$1,518
$1,360
$177$140
$2,878
$1,380
$488
2012 2013 2014 2015 2016
Cash
Revolver
Term Loan Revolver
Revolver
Total
Liquidity
Strong Liquidity Provides Financial Flexibility . . .
Even Against A Backdrop of Aggressive Share Repurchases
Value
Creation
Margin
Expansion
Flextronics Transformation Summary
Increased
Predictability
$845M
FY02-
FY07
$3.0B
FY08-
FY12
$3.0 –
$4.0B
FY13E-
FY17E
Revenue Predictability
70 / 30 Mix
70 / 30 Mix
~3.0%
70/30
Transition
+35 bps +15 bps
3.5%
June Qtr
FY13E
$6.1
Billion
Guidance
(mid-pt)
Target
Volume
$6.6 Billion
Revenue/Qtr
Reduced
Volatility
Earnings Predictability
+25% +15% +10%
June Quarter FY13 Guidance Reaffirmed
JUN-12EJUN-12E
Quarterly
Revenue
($ in Millions) Quarterly
Adjusted EPS
$6,300
$5,900 $0.20
$0.24
FLEX Business Groups JUN-12E Q/Q Outlook
Integrated Network Solutions Stable
Industrial & Emerging Solutions High Single Digit Growth
High Reliability Solutions Low Single Digit Growth
High Velocity Solutions Down 15% to 25%
Assumptions
● OP% 3.0% to 3.1%
● SG&A $180M to $190M
● Interest & Other $15M to $20M
● Tax rate at 8% to 10%
● WASO 695M
● GAAP EPS range $0.17 - $0.21
INVESTOR & ANALYST DAY 2012
FINAL WRAP UP / Q&A
As a result of the Company’s decision to divest its VPT Business, current and historical operating results
for this business have been recast as Discontinued Operations and are not included in the measures of
performance.
The non-GAAP financial measures included in this presentation : adjusted operating profit, adjusted net
income, adjusted operating margin, adjusted EPS , Debt to EBITDA and free cash flow may exclude
certain amounts that are included in the most directly comparable measures under GAAP or may be a
supplement measure of operating performance. Adjusted financial measures exclude charges primarily
for restructuring, stock-based compensation expense and intangible amortization. Please refer to the
Investors section of our website which contain the reconciliation of non-GAAP financial measures to the
most directly comparable GAAP measures.
GAAP annual earnings per diluted share are expected to be lower than the guidance provided herein by
approximately $0.12 reflecting annual intangible amortization and stock-based compensation expense.
Adjusted operating profit profile by Business Group excludes amortization and stock compensation
expense and represent approximations as the company does not include formal allocations of common
facilities and overhead costs, or centralized corporate services such as marketing, IT and other
administrative support. Although discrete financial information exists to a limited degree, the company
opportunistically allocates its resources according to specific customer opportunity irrespective of the
business group in which the business activity will be reported.
Appendix: Notes