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Jarl Greve | Nadine Raida | Morten Juhl | Sebastian Kersting
Taking the Next Step Team Sauder Jarl Greve | Nadine Raida | Morten Juhl | Sebastian Kersting
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By expanding distribution and initiate production in India Nord-Lock can gain 1.5 BSEK by 2019
Introducing 2 main initiatives… … will bring you 1.5 BSEK in revenue by 2019 2015 Europe/ America Korea Japan 2019 mSEK Revenue Expand Distribution in Japan Initiate Production in India EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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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 |
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… as a result main revenue comes from Europe
70% 16% 14% Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Nord-Lock are facing both internal and external challenges
Competition, limited capacity and decreasing growth in key markets constitute challenges for Nord-Lock Nord-Lock are facing both internal and external challenges Capacity Slow Growth Competition Challenges 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 |
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… but also several opportunities
… but global opportunities and growth in Asia open up for Nord-Lock to regain growth … but also several opportunities Global Growth in Asia Low cost production Opportunities Global presence, regional focus 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 |
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Several options have been explored
IMPACT HIGH Size Price Sensivity Market expansion Growth Profitability New premium product Impact Feasibility B2C segment Organizational fit Risk Competition LOW Low cost products LOW HIGH Feasibility EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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… but based on feasibility and impact a market expansion is found to be the best solution
HIGH Size Price Sensivity Market expansion Growth Profitability New premium product Impact Feasibility B2C segment Organizational fit Risk Competition LOW Low cost products LOW HIGH Feasibility EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Of the countries Nord-lock is active within the Asian economies have most market potential and growth China HIGH Korea MARKET POTENTIAL PRIORITIZE Japan Profitability Organisational fit Scandi MARKET GROWTH Current market share US/ Ca EU rest MAINTAIN DE Market size LOW LOW HIGH MARKET POTENTIAL EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Due to favorable industries Japan and South Korea should be the focus for Nord-Lock
China 9% growth Automotive, Agriculture Only present through 3rd party Japan 5% growth Transportation, Offshore Existing sales office South Korea 7% growth Transportation, Offshore Excessive distribution Source: Company Material EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Of the countries Nord-lock is active within the Asian economies have most market potential and growth China HIGH Korea MARKET POTENTIAL PRIORITIZE Japan Profitability Organisational fit Scandi MARKET GROWTH Current market share US/ Ca EU rest DE MAINTAIN Market size LOW LOW HIGH MARKET POTENTIAL EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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…and local competitors in Japan and South Korea do not threaten Nord-Locks position in the market
High Premium Position Price High Purchase Price Long life cycle Low Low High Safety Source: Market Line EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Expand Distribution in Japan CBS |
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Nord-lock’s entry strategy must take capabilities, level of protection and ability to control into account Parameter Acquisition Joint Venture Licensing Greenfield Local knowledge NL Capabilities Protection of knowhow Control EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Nord-lock’s entry strategy must take capabilities, level of protection and ability to control into account Parameter Acquisition Joint Venture Licensing Greenfield Local knowledge NL Capabilities Protection of knowhow Control EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Ease of implementation
The 4 main Japanese distributers in this segment are all possible targets Financial impact Company fit JTEKT Broad targets Sanko Techno Co Mature companies Large targets Kobayashi Metals Techno Associe Co Ease of implementation EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Ease of implementation Ease of implementation
The 4 main Japanese distributers in this segment are all possible targets Financial impact Company fit Loyalty Program Acquire Arriva Customer Journey Real time data Collaborations Experience Lower prices Ease of implementation Financial impact Company fit Broad targets Mature companies Large targets Kobayashi Metals Ease of implementation Advantages 1 2 Similarity of products 3 Warehouse facilities Disadvantages 4 Non-core business units 5 High P/E EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Previous transactions Implied value 410 million SEK
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 |
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Restructure management Current Nord-lock sales office Japan
Nord-lock must integrate Kobayashi with existing Japanese offices to achieve synergies within revenue and cost Important synergies Key Decisions Secure revenue streams Process optimization Cost reduction Restructure management Integrate IT systems Current Nord-lock sales office Japan Kobayashi Metals Distribution Warehousing Sales EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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After acquiring Kobayashi Nord-lock should focus on 3 key areas to ensure successful post-merger integration Focus KPI Employee satisfaction Supplier relations Customer attrition Employee turnover rate Customer churn rate Long term contracts Lock-in EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Expand Distribution in Japan CBS |
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Due to limited capacity expansion of production facilities is needed
Expand Distribution in Japan CBS |
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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 |
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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 |
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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 |
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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 |
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Setting up production facilities in Mumbai requires people, sourcing and an assessment of capacity
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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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 Machinery Maintenance Lean 7 people Production Equipment Production planning 22 people Statistical control Failure testing Quality management EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Local sourcing for production
By initiating production to India Nord-Lock can increase capacity and utilize local sourcing Capacity Sourcing India Sweden Production Warehouse Transfer of volumes Local sourcing for production Research, procurement, production, tech, QA Source: Company material, Latour EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Expand Distribution in Japan Initiate Production in India CBS |
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Entering into Korea and Japan will give Nord-lock a foothold in Asia and an option to expand
Gaining a foothold in Asia will give future opportunities for Nord-lock Expand market position in China Enter into the Indian market Move entire production to LCC 1 3 2 Market leadership Expansion Vision Time EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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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% Market Share Market growth EBIT margin Best Base Assumptions: 12% market share in both Japan and Korea Worst Assumptions: 10% & 7% market share in Korea and Japan, respectively EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS | Worst
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10% growth in status quo growth
This suggestion will give Nord-lock not only additional revenue of up to 485m but sustainable growth markets Nord-lock can create additional revenue of up to 485m in 2019 10% growth in status quo growth mSEK Revenue 94m in profits in Japan 50m in profits in Korea Europe/ America 2015 Korea Japan 2019 EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Expanding in Asia involves some important risk factors that Nord-lock must address beforehand
Issue Mitigation High Issues A Lack of skilled labor in Mumbai Implement quality training B Liklihood B Inability to obtain market share Focus on quality and branding A C Low C Loss in home markets Continuous improvement of qualty Low Impact High EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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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 1 2 3 Acquire distribution chain in Japan by Q4 2016 Acquire land in Kamathipura for production by Q3 2016 Hire skilled labor and managers for Indian facility by Q1 2018 EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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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 |
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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 |
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By expanding distribution and initiate production in India Nord-Lock can gain 1.5 BSEK
Introducing 2 main initiatives… … will bring you 1.5 BSEK in revenue by 2019 2015 Europe/ America Korea Japan 2019 mSEK Revenue Expand Distribution in Japan Initiate Production in India EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |
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Jarl Greve | Nadine Raida | Morten Juhl | Sebastian Kersting
Questions and Answers Team Suader Jarl Greve | Nadine Raida | Morten Juhl | Sebastian Kersting
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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)
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47% 16% 12% Key Markets % of revenue Germany USA Scandinavia APPENDIX
CBS |
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Leading research centers
Evaluation of Indian Cities Mumbai Delhi Bangalore Kolkata Education Infrastructure Leading research centers Costs Economic Location APPENDIX CBS |
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Wholly Foreign-owned Enterprise
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, workforce, 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% ownership and management control Registered capital requirement Lengthy establishment process APPENDIX CBS |
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Capacity Calculations
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Sweden Asia % 100% 80% 30% 0% Europe and North America % Asia 103 183 271 138 Europe and North America 694 763 839 923 1015 1066 1120 1176 1234 1296 Total 797 946 1110 1061 % 94% 77% 68% 65% 62% 58% 55% 52% India 20% 70% 68 321 485 582 699 1006 1208 6% 23% 32% 35% 38% 42% 45% 48% 338 459 1178 1382 1501 1649 1818 2014 2241 2504 13% 19% 29% 33% 87% 81% 71% 67% APPENDIX CBS |
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Risk analysis Appendix 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 2 4 8 Focus on understanding customer needs and continually focus on branding NL to high-end and niche segments Resistance from owner – Latour Holding Company 1 Focus on aligning interests and suggest raising debt to lower cost of capital Loss of revenue in home markets 6 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 |
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Share of overall revenue
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 Den, Sve and Nor 58 8% 4% 29% Japan 52 5% Korea 51 6% Finland 26 69% Italy 15 2% 1 Spain 14 France Benelux China 13 9% 1% UK APPENDIX CBS |
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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/manufacturing Anchors Joint venture - 7206 Techno Associe Co Broad Only fastener product division 20457 JTEKT Automotive Automotive/Machinery/bearings 3 543766 Source Company website, reports, morningstar and bloomberg APPENDIX CBS |
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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 Mean 5,0x Median 4,9x 8,0x Min 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 |
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Cost and Capital for Investment
Latour Holding Debt 5195 Equity 16080 D/E 32% Leverage ratio 24% Cost of investment 2016 2017 2018 2019 Acquisition 410 50 Production facility 300 200 100 Post merger integration 20 People 10 Total 710 260 130 80 APPENDIX CBS |
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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 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 2118 Market share 6/3% 10/5% 10/7% 12/10% 12/12% 51 91 98 134 52 202 254 APPENDIX CBS |
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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 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 2118 Market share 6/3% 10/5% 15/10% 15/15% 51 91 146 157 168 52 192 303 318 APPENDIX CBS |
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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 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 2118 Market share 6/3% 7/5% 8/7% 10/7% 51 64 78 104 112 52 91 134 141 148 APPENDIX CBS |
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