investors’ day 2015 the schaffner group we shape ......“schaffner provides manufacturers and...
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Investors’ Day 2015The Schaffner GroupWe shape electrical power
Agenda
| Introduction to Schaffner
| Strategy 2020 - Group
| Strategy 2020 – Finance
| Division EMC
| Business Unit Power Quality
| Division Power Magnetics
| Division Automotive
| Summary
Alexander Hagemann
Alexander Hagemann
Kurt Ledermann
Guido Schlegelmilch
Stefan Melly
Alexander Hagemann
Alexander Hagemann
Alexander Hagemann
© Schaffner GroupSLIDE 2
Investors’ Day 2015Introduction to Schaffner
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Schaffner: a Leader in Electromagnetics and Power Electronics
Key figures FY 2013/14
– Net Sales: CHF 214.6 million– EBIT margin: 7.0%– 3,140 employees worldwide– Market cap as of 23.09.2015: CHF 140 million
Balanced sales and global footprintDivisions with leading market positions
Electro Magnetic Compatibility Filters (EMC)– No 1 in EMC filters
Power Magnetics (PM)– No 3 in transformers/inductors
Automotive (AM)– No 2 in keyless entry antennas
FY 2013/14 FX Reported
Net sales growth above GDP
100%
200%
USA 18% Europe 47% Asia 35% Production Sites
“Schaffner provides manufacturers and users of electrical and
electronic equipment worldwide with components, systems and
services that enable efficiency and reliability by applying leading
knowledge in electromagnetics and power electronics.”
We shape electrical power
Schaffner Mission
5
Business Model
6
•Products•Solutions•Services
Global Footprint
CompetenceCenter Unique Position
in Power Electronics
• Innovation Center• Global Talents• Research Network
• USA• Europe• Asia-Pacific
• EMC• Power Quality• Power Magnetics• Automotive
Client and Market
Needs
Broad Market Mix…
© Schaffner Group7
Motor DrivesRenewable Energy
Rail Transportation
Automotive
Health Care
LED
Oil + Gas
Water Treatment
Smart Grids
Marine
Robotics
Solutions from Schaffner Eliminate Distortions of Electrical Power …
© Schaffner GroupSLIDE 8
…Served by Three Divisions
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Electro Magnetic Compatibility Power Magnetics Automotive
No. 1 in EMC filters 1
Sales: CHF 110 mn
EBIT: CHF 15.9 mn
Market Size: CHF 330 m
1) No. 2: TDK (Japan/Germany)
24Marketsharein %
No. 3 in Transformers/Inductors 2
Sales: CHF 67.3 mn
EBIT: CHF 4.3 mn
Market Size: CHF 2 bn
2) No. 1: Hammond Power Solutions (Canada)
4Marketsharein %
No. 2 in Keyless Entry Antennas 3
Sales: CHF 37.3 mn
EBIT: CHF 2.5 mn
Market Size: CHF 120 mn
3) No. 1: Sumida Corporation (Japan)
25
Marketsharein %
All financials: ACT FY 2012/14. Market sizes and shares are Schaffner estimates 2015
Investors’ Day 2015Strategy 2020 - Group
Strategic Priorities
| Exploit growth opportunities through organic growth and acquisitions
| Margin improvement through continued efforts for operational excellence
| Strengthen market penetration in North America
11
Strategic Priorities: Organic Growth and Acquisitions
| Focus on markets with long-term growth drivers, e.g. air conditioning and motor drives
| New technologies and product pipeline, setting Schaffner apart from competition
| Build on solid M&A track record and increase external growth
12
Strategic Priorities: Operational Excellence to Expand EBIT Margin
Past improvements driven by:
| Lean manufacturing
| Restructuring of logistic flows
| Factory consolidation in Europe
Focus areas for future improvement:
| Optimized global footprint
| Zero defect manufacturing
| Quick response manufacturing
| Automation in Asian operations
13
Strategic Priorities: Accelerated Expansion in North America
| „Reshoring“ of production, modernization of infrastructure and robust economy drive demand
| Schaffner coming from a base of lower market share compared to Europe and Asia-Pacific
| Critical mass achieved to establish a strong presence: management, marketing, engineering, production
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Schaffner Aims to Exceed CHF 400 million in Net Sales in 2020
15
0
50
100
150
200
250
300
350
400
450
CHF 215 m
CHF million
FY 2013/14 FY 2019/2020
EMC
PM
AM
EMCEMC:• Grow in a mature market• Accelerate growth with Power Quality
> CHF 400 m
PM: Achieve market leadership
Automotive: Establish a robust business
PM
AM
Financial Targets Across the Cycle
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• Leverage ratio target: Net Debt/EBITDA < 3
• Long term equity ratio > 40%
• Dividend policy: pay-out ratio 25-35% of Net Income
Net Sales Growth, organic
EBITA Margin ROCE
EMC > 3% > 12%
PM > 7% > 8%
AM > 5% > 10%
Group > 5% > 8% > WACC
Investors’ Day 2015Strategy 2020 - Finance
Financial Highlights H1 2014/15
| Net sales CHF 102.5 million (CHF 102.6 million)
| Growth -0.1%, in local currencies +1.4%
| Book-to-bill 0.99 (1.06)
| EBIT margin on 3.6% (4.8%)
| Net profit CHF 1.9 million (CHF 3.2 million)
| EPS CHF 3.02 (CHF 5.08)
| Free cash flow CHF -2.8 million (CHF -2.2 million)
| Sound balance sheet with 40% (30.09.14: 43%) equity ratio
© Schaffner GroupSLIDE 18
Profit & Loss Statement
SLIDE 19
2012/13 2013/14 H1 2014/15Net Sales 194.9 214.6 102.5
– Cost of sales 142.3 151.9 74.3
Gross profit 27.0% 52.5 29.2% 62.7 27.5% 28.2
– R&D, Application engineering 7.8% 15.1 6.9% 14.8 7.6% 7.8
– Others 26.9 31.4 15.6
EBITA 5.4% 10.5 7.7% 16.5 4.5% 4.8
– Amortization 1.3 1.5 1.1
EBIT 4.7% 9.2 7.0% 15.0 3.6% 3.7
– Financial result 2.1 1.2 1.4
– Tax 1.0 1.2 0.4
Net Profit 3.1% 6.1 5.9% 12.6 1.9
© Schaffner Group
Balance Sheet
SLIDE 20
2012/13 2013/14 H1 2014/15
Intangible assets, Goodwill 19.6 24.1 23.2
Property, plant and equipment 20.9 24.8 24.4
Others 10.7 8.5 6.9
Total non-current assets 37% 51.2 37% 57.4 37% 54.5
Inventories 28.1 31.3 29.2
Trade Receivables 34.0 38.5 36.9
Cash & Equivalents 17.0 18.6 20.1
Others 8.5 8.6 7.9
Total current assets 63% 87.6 63% 97.0 63% 94.1
Equity 42% 58.1 43% 66.6 40% 59.2
Non-current liabilities 27% 37.1 28% 42.4 34% 51.0
Current liabilities 31% 43.5 29% 45.4 26% 38.3
© Schaffner Group
Cashflow Statement
SLIDE 21
2012/13 2013/14 H1 2014/15
Net profit 6.1 12.6 1.9
Depreciation and amortization 7.0 7.1 3.9
Change in net working capital 10.3 -2.2 -5.4
Change in provision -1.6 -1.0 -1.4
Others -1.0 -1.2 1.2
Cashflow from operating activities
20.8 15.3 0.2
Cashflow from investing activities
-6.2 -15.8 -1.6
Cashflow from financing activities
-7.7 1.8 2.9
CAPEX -4.9 -6.4 -3.0
Free cashflow 16.0 8.9 -2.8
© Schaffner Group
Innovation and Portfolio Diversification Lead to Sustainable Growth
SLIDE 22
Capital employed by division Gross margin
Net sales
© Schaffner Group
FY 2013/14 FX Reported
Net sales growth above GDP
100%
200%
0
20
40
60
80
2009/10 2010/11 2011/12 2012/13 2013/14
AMPMEMC
0
50
100
150
200
250
2009/10 2010/11 2011/12 2012/13 2013/14
AMPMEMC
0%10%20%30%40%50%
2009/10 2010/11 2011/12 2012/13 2013/14
TotalEMCPMAM
Strong Operational Leverage
SLIDE 23
Break-even point and operating leverage
Every CHF 1.–in additional sales will result in CHF 0.30 additional EBIT
© Schaffner Group
Currency Exposure – Cash Flow (in CHFm)
SLIDE 24
Highest currency exposure in Thai Baht, natural hedge in all other regions
0
20
40
60
80
100
120
140
160
180
200
CHF CNY USD EUR THB Rest
Inflow (Sales) Outflow (operating expenses)
© Schaffner Group
Overview Distribution to Shareholders
SLIDE 25 © Schaffner Group
Financial Key Performance Indicators
SLIDE 26 © Schaffner Group
| Sales growth > 5 %
| Operational EBITA margin > 8 %
| Equity ratio > 40 %
| Economic Value Added, ROCE > WACC
| Pay-out to shareholders 25-35 % of net income
Measuring Performance of Divisions
SLIDE 27 © Schaffner Group
Operational EBITA
Operational earnings before interest, taxes and acquisition-related amortization represents
Income from operations excluding acquisition-related amortization, restructuring and
restructuring related expenses, gains and losses from sale of businesses and acquisition
related expenses.
Schaffner Earnings Sustainably Exceed Capital Costs
© Schaffner GroupSLIDE 28
-15.0%
-5.0%
5.0%
15.0%
25.0%
Target: ROCE > WACC
WACC ROCE
5.6% WACC5.6% WACC
10.6% ROCE10.6% ROCE
Investors’ Day 2015Schaffner DivisionsWe shape electrical power
The Schaffner Group
Markets of the Schaffner Group
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Division EMCInvestors’ Day 2015
© Schaffner GroupSLIDE 31
EMC Division
© Schaffner GroupSLIDE 32
129106 109 110
050
100150200250
Net sales (in CHFm)
Operating profit (in CHFm)
20
12 14 16
05
10152025
Global Footprint
Production SitesSales markets
Markets
Main Products and Solutions
© Schaffner GroupSLIDE 33
Chokes
Inlet FilterDC FilterAC Filter
MF FilterOutput Filter
Growing Market Share in a Challenging Environment with EMC Filters
| Market size CHF 330m with future CAGR of 2%
| Market decline for traditional EMC filters since 2011 due to CHF
appreciation, volume and price reduction in Photovoltaics
| Already 25 % of division sales in high growth areas: Output filters,
Middle Frequency filters, Power Quality filters
| High market shares in several regional and vertical markets
| Only very few truly global competitors,
| Local competition addressed by strengthening local presence
(e.g. sample center and business development team USA)
© Schaffner GroupSLIDE 34
EMC Division Update
Schaffner EMC is pursuing profitable growth by:
| Gaining market share in existing markets like motor drives and machine tool & robotics
| Participating in the growth of new markets like quick charger and 3D printing
| Exploiting an innovative and growing product portfolio
| Building up new customers with strong FAE presence
| Continuously improving cost structures and organization processes
© Schaffner GroupSLIDE 35
Application Example: Home Automation
| Sales of home automation have been growing substantially since 2009 and this trend is expected to gain momentum through 2020
| The simplicity of management of home automation systems suggests they will be available for the masses in the near term.
| Targeted companies who have invested in product development: Crestron, Lutron, Savant, Sonos, Control 4, Marantz, Integra, Bower & Wilkins, JBL, Leon.
| Schaffner won first key customers with chokes, 1phase and inlet filters
© Schaffner GroupSLIDE 36
Application Example: 3D Printing
| The global 3D printing market is expected to reach $20.2 billion in 2019
| The three major manufacturers of 3D printers include 3D Systems, Stratasys, and ExOne
| Schaffner won projects at leading customers with 1phase and inlet filters
© Schaffner GroupSLIDE 37
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| Siemens Solution Partner Automation Drives
| Fulfilment of globally standardized tests and audits
| Market- and application specific products and tools
complementing Siemens system solutions
| Benefiting from global Siemens sales channels
| Regular technical trainings on latest product
developments of entire Schaffner portfolio
Cooperation With Key Leaders in the Market
Strategic Priorities Will Create Growth in Classical EMC Filter Business…
… while supporting new filter businesses.
| Smaller businesses for output filters, middle frequency filters and PQ filters will grow >15% p.a.
| Major business for EMC filters shows slower growth with leading market position| Use robust and well performing organization to support engineering, sales,
manufacturing and logistics worldwide| Create EMC filter growth by strategic priorities:
focus on organic market share growthincrease existing trading and distribution businessacquire and consolidate smaller competitors
© Schaffner GroupSLIDE 39
Strategic Priority: Focus on Organic Market Share Growth
| Organic market share growth for market leader
requires focused approach in several areas
| New product introduction
| Adequate pricing strategy
| Shorten time to market and introduce quick
response manufacturing
| Selected vertical markets are Drive OEM,
elevator, machinery & robotics
© Schaffner GroupSLIDE 40
Strategic Priority: Increase Existing Trading and Distribution Business…
… with new products and partners.
© Schaffner GroupSLIDE 41
| Provide access for third party suppliers to different markets
| Leverage our existing organization| Strong growth opportunities| Today already single digit MCHF trading
business with attractive margins| Extension of existing product portfolio
| Several new opportunities under discussion
Growth after new product introduction
Business Unit Power QualityInvestors’ Day 2015
Power Quality
© Schaffner GroupSLIDE 43
Net sales (in %)
Global Footprint
Production SitesSales markets
Markets
100%
405%
>30% CAGR
Products and Solutions
© Schaffner GroupSLIDE 44
Active filters Solutions Passive filters
Competitive Environment
© Schaffner GroupSLIDE 45
Harmonic filter market data
Addressable market 2015 300 … 350 m CHF
Schaffner market share 2015 3%
CAGR 2015 … 2020 7%
Schaffner YoY growth +14% (YTD August 2015)
Competitors 3 major global players> 30 smaller regional players
Power Quality Business Unit Update
| Dedicated business unit organization since April 2014 which supports growth ambitions
| Strong application engineering and customer service for differentiation and customer intimacy
| Pre- and after-sales service for supporting customers over the entire product life cycle
| Global sales partner network with representation in > 25 countries
| Full product pipeline and technology roadmap
© Schaffner GroupSLIDE 46
Project Example: Lee Kong Chian Natural History Museum (Singapore)
| Compliance with IEEE-519 Power Quality standard for the building’s HVAC system. | 164 ECOsine® passive harmonic filters installed.
© Schaffner GroupSLIDE 47
Project Example: Amusement Park Plohn (Germany)
| Increased reliability of roller coaster «Miniwah» power electronics. | 2x 100A ECOsine® active harmonic filters installed.
© Schaffner GroupSLIDE 48
Project Example: Offshore Oil & Gas Outdoor Application (USA)
| 3x 100A ECOsine® active harmonic filters integrated in outdoor-grade NEMA enclosure.| Electrical installation incl. fuses and mains breaker according to North American standards.
© Schaffner GroupSLIDE 49
Strategic Priorities
© Schaffner GroupSLIDE 50
1. Sales network 2. Vertical markets 3. Product innovation 4. After-sales service
“Accelerate growth”
Strategic Priority 1: Strengthen Global Sales Partner Network
© Schaffner GroupSLIDE 51
Added 2015+1 in India
>70 PQ sales partners >25 countries +5 added in 2015
Added 2015+1 in USA
Added 2015+1 in Ireland
Added 2015+1 in Norway
Added 2015+1 in Germany
Strategic Priority 2: Focus on Selected Vertical Markets
© Schaffner GroupSLIDE 52
FactoryAutomation
WaterTreatment
Oil & GasHVAC
Building Technology
Strategic Priority 3: Drive Product Innovation
| Innovation network involving partners from industry and universities
| Development of second product generations
| Design to cost, quality and service-ability
| Implementation of Power Quality technology roadmap
© Schaffner GroupSLIDE 53
Strategic Priority 4: Establish Profitable After-Sales Service
| Roll-out of global service partner network
| Services offered:Installation, commissioning and training Scheduled maintenance and repairsSpare and wear part management Extended warranty
© Schaffner GroupSLIDE 54
SchaffnerMaintenance
PartnerLevel 1
SchaffnerPremiumInstallerLevel 2
SchaffnerServicePartnerLevel 3
Division Power MagneticsInvestors’ Day 2015
© Schaffner GroupSLIDE 55
Power Magnetics Division Key Facts
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Net sales (in CHFm)
Operating profit (in CHFm)
36.046.5
53.967.3
0
20
40
60
80
-0.3 -0.3
3.04.3
-202468
Global Footprint
Markets
Production SiteSales markets
Power Magnetics Product and Solutions Overview
| Water-cooledinductors for motordrives
57
| Filter inductors forheavy-duty freightlocomotives
| Medium voltagetransformers forextendedrequirements
| Transformer/inductorcombinations forphotovoltaicinverters
PM Division Update
| Focus: Dry-type transformers and inductors for motor drives, renewable energy and traction
| Challenging market conditions worldwide
| Footprint optimization by consolidating US production
| Establishment of competence center in Germany while moving more production to Hungary
58
Application Example: Value Selling
| A new development in downtown Manhattan requires transformerswith superior electrical, mechanical and environmental performance
| Schaffner’s Magne-Seal technology offers unique robustness at a compact size
| Avoid commoditized mass markets by focussing on profitable niches
59
Application Example: Unique Value Proposition to Globally Active Customers
| Schaffner supplies a longstanding customer with components foruse in propulsion systems of high-speed trains
| Driven by end customer demand, a split of production betweenEurope and China became necessary
| Customer testimonial: «The best production transfer I haveexperienced in my career»
| Same processes are applied to other customers with local contentrequirements, e.g. supporting Japanese train makers in America
© Schaffner GroupSLIDE 60
~ 6 Global Players
~ 12 Regional Leaders
> 100 Local Suppliers
Power Magnetics Competitive Environment
| Weakness of Oil & Gas market affects the whole industry
| A highly fragmented field of competitors
| Globalization, technological, quality and cost requirements canonly be met by the strongest players
© Schaffner GroupSLIDE 61
Market share of competitors by class(approximation)
Power Magnetics Strategic Priorities
| Continue to focus on motor drive, renewable energy and traction markets
| Strengthen technology platform for existing and new applications
| Leverage unique global capabilities and synergies with EMC division
| Drive industry consolidation
| Constantly optimize manufacturing footprint and processes
62
Division AutomotiveInvestors’ Day 2015
Automotive Division Key Facts
64
Net sales (in CHFm)
Operating profit (in CHFm)
17.624.7
31.337.3
0
10
20
30
40
-0.4
0.6
-2.0
2.5
-4
-2
0
2
4
Global Footprint
Markets
Production SiteSales markets
Automotive Products and Solutions Overview
65
Low Frequency Antennas (LFA) for keyless entry systems
EMC filters for electric and plug-in hybrid vehicles (EV/PHEV)
Automotive Division Update
| Continued double-digit growth with LFA for keyless entry
| Entry into EMC filter business for EV/PHEV
| Exit from commoditized applications
| Operational excellence at high levels
| Mid-term business secured through long-term supply agreements
| Productivity gains through design to cost, automation
66
Demand for Keyless Entry Systems is Driven by Increased Penetration Rate
67
EV/PHEV Have Reached ~0.5% of Global Vehicle Production – Soon to be 1%
© Schaffner GroupSLIDE 68
Competitive Environment: Being a Leader in an Automotive Niche Market
© Schaffner GroupSLIDE 69
30%
25%
Market share LFA
| Schaffner with market share gains through customerdiversification
| Schaffner and Sumida strongest, ~3 x larger than nextcompetitor
| Differentiation through best quality and delivery performance at competitive cost
Schaffner
Sumida
Automotive Strategic Priorities
© Schaffner GroupSLIDE 70
| Grow with the market for keyless entry systems by leveragingSchaffner’s excellent design and manufacturing capabilities
| Develop complementary products to LFA antennas
| Prepare the EMC filter business for electric and plug-in hybrid vehicles
Investors’ Day 2015Investment Rationale
We shape electrical power – and create value
Leader in technological and application know-how
Most complete solution portfolio
Most global amongst all competitors
Excellent growth opportunities in expanding market
Attractive capital returns
72