Attached files
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| 8-K - 8-K - KEMET CORP | fy2017_q4x8kxinvestpres.htm |
1
B. Riley & Company
18th Annual Investor Conference
May 25, 2017
Presenters: Per Loof – Chief Executive Officer
William M. Lowe, Jr.
EVP & Chief Financial Officer
2
Cautionary Statement
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about
KEMET Corporation's (the "Company") financial condition and results of operations that are based on management's current
expectations, estimates and projections about the markets in which the Company operates, as well as management's beliefs and
assumptions. Words such as "expects," "anticipates," "believes," "estimates," variations of such words and other similar expressions
are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The
Company undertakes no obligation to update publicly any of these forward-looking statements to reflect new information, future
events or otherwise.
Factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, these forward-looking
statements include, but are not necessarily limited to, the following: (i) adverse economic conditions could impact our ability to realize
operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue
to operate and cause a write down of long-lived assets or goodwill; (ii) an increase in the cost or a decrease in the availability of our
principal or single-sourced purchased raw materials; (iii) changes in the competitive environment; (iv) uncertainty of the timing of
customer product qualifications in heavily regulated industries; (v) economic, political, or regulatory changes in the countries in which
we operate; (vi) difficulties, delays or unexpected costs in completing the restructuring plans; (vii) acquisitions and other strategic
transactions expose us to a variety of risks; (viii) acquisition of TOKIN may not achieve all of the anticipated results; (ix) our business
could be negatively impacted by increased regulatory scrutiny and litigation; (x) difficulties associated with retaining, attracting and
training effective employees and management; (xi) the need to develop innovative products to maintain customer relationships and
offset potential price erosion in older products; (xii) exposure to claims alleging product defects; (xiii) the impact of laws and
regulations that apply to our business, including those relating to environmental matters; (xiv) the impact of international laws relating
to trade, export controls and foreign corrupt practices; (xv) changes impacting international trade and corporate tax provisions related
to the global manufacturing and sales of our products may have an adverse effect on our financial condition and results of operations;
(xvi) volatility of financial and credit markets affecting our access to capital; (xvii) the need to reduce the total costs of our products to
remain competitive; (xviii) potential limitation on the use of net operating losses to offset possible future taxable income;
(xix) restrictions in our debt agreements that could limit our flexibility in operating our business; (xx) disruption to our information
technology systems to function properly or control unauthorized access to our systems may cause business disruptions;
(xxi) additional exercise of the warrant by K Equity, LLC which could potentially result in the existence of a significant stockholder who
could seek to influence our corporate decisions; (xxii) fluctuation in distributor sales could adversely affect our results of operations,
(xxiii) earthquakes and other natural disasters could disrupt our operations and have a material adverse effect on our financial
condition and results of operations.
2
3
TOKIN Acquisition Closure
4
“The Deal”
Cash Facts
Cost of acquiring TOKIN
$104M
o $50M in 2013
o $54M now
100% of TOKIN cash
$165M
Used $52.5 to pay down debt post closing
Combined cash after closing, refinance & debt
reduction
$216M
5
TOKIN OVERVIEW
Founded: April 8, 1938
• 5,348 employees
• 978 in Japan
6 manufacturing locations
• Japan (3)
• Thailand
• Vietnam
• China
• Capacitors
Tantalum Polymer (NeoCap)
Supercapacitors
• Electromagnetic Compatibility (EMC)
Power Inductors
Ferrite Cores
Transformers
Noise Suppression sheets
• Sensors & Actuators
Piezoelectric Actuators
Current & Temperature Sensors
High-Yield
Bonds
Refinanced
1) Fund redemption of all outstanding
$353 million 10.5% Senior notes due
2018
2) Repaid outstanding amount on
revolver of $34 million
3) New Term Loan:
$345M US$
Rate = LIBOR + 600 bps
$13M / year interest savings
5% annual principal amortization
Matures April 28, 2024
7
Company Overview
Post TOKIN Acquisition
Simpsonville
Ciudad Victoria,
Monterrey & Matamoros,
Mexico
Evora,
Portugal
Pontecchio, Italy
Kyustendil, Bulgaria
Anting, China
Carson City, NV
Batam,
Indonesia
Suomussalmi, FinlandGranna & Farjestaden,
Sweden
Suzhou, China
Skopje, Macedonia
Xiamen, China
Toyama, Japan
Shiroishi, Japan
Sendai, Japan
Bang Pakong,
Thailand
Biên Hòa, Vietnam
• Global manufacturer of tantalum, multilayer ceramic, solid and electrolytic, aluminum and film and paper
capacitors, electro magnetic capability devices, and sensors and actuators
• 24 manufacturing plants located in North America, Europe and Asia
• employees worldwide (15,000+)
– USA 618 Mexico 5,398 Japan 978
– Asia 6,428 Europe 1,580
• Recognized as the “Easy to buy from Company” (ETBF) and “Easy to design in” (E2Di)
8
Combined Company Product Overview
Capacitors (KEMET/TOKIN)
Electro-Magnetic compatible
Devices (TOKIN)
Sensors / Actuators (TOKIN)
Market
Segment /
Selected
Application
Detail
• Computer – Microprocessor Decoupling
• Telecommunications – Transceiver Cards
• Mobile Phones – Audio & Battery Backup
• Gaming – Processor Decoupling
• LCD TV – Video Converter
• Automotive – Engine Control/Safety/HID
lighting
• Military/Aerospace – Avionics/Comm
• Downhole drilling
• Medical
• Motor Start & Drives
• Renewable Energy – Power Inverters
• Consumer/Industrial – Power Supplies
• Computer - Notebook PCs/Servers
• Telecom Infrastructure
• Gaming
• Automotive - Infotainment
• Telecom Infrastructure
• Consumer – Battery chargers/AC
adapters/Power supply
• Mobile phones
• Industrial
• Consumer Appliances – Refrigerators,
inductive Cooking, and Air conditioning
• Automotive – Power supply
• Consumer – Power supply
• Medical
Market
Demand
• Tantalum (Polymer/Mno2): high
reliability and high capacitance. (Tablets
/ laptops and high reliability applications)
• Ceramic: smaller capacitance and
smaller sizes
• DC film: high current per capacitance.
Ability to withstand wide temperature
ranges in harsh environment
• Supercapacitors: Rapid charging and
approaching infinite charge/discharge
cycles (Internal clock/Smart meters/Test
equipment applications)
• Inductors: Low frequency pass
through inductor / High frequency
pass through Capacitor
• Filters: Reduces electro magnetic
interference
• Flex suppressors: Absorbs
electromagnetic noise and converts
it into heat
• Current sensors: Designed to detect
AC/DC or leakage current through magnetic
field
• Thermal sensors: Designed to shutdown
electric equipment when a specific
temperature is exceeded.
• Piezo Actuators: Converts electrical
energy into mechanical energy (precision
Stepper Motors/Microscopes applications)
9
KEMET/TOKIN by segment, region, channel
(Est. Q1FY18 sales)
ChannelSegment
Region
Telecom
14%
Computer
19%
Consumer
10%
Ind/Light
26%
Automotive
17%
Def/Med
9%
Other
4%
Product
Film and
Electrolytics
16.8%
Ceramics
21.5%
Tantalum/Polymer
42.3%
EMC
15.2%
S&A
4.2%
Japan
15%
Asia
41%
Americas
22%
EMEA
22%
Dist / Agent
41%
OEM
44%
EMS
15%
10
KEMET/TOKIN Market Share
Tantalum / Polymer (est. $1.3B)*
KEMET
27.2%
TOKIN
7.6%
AVX
30.0%
Sanyo
12.0%
Others
23.2%
34.8%
* Management estimates
11
Market Trends
12
Semiconductor Industry vs. Capacitor Industry
Billion US$
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
CY1
3
Q
1
Q
2
Q
3
Q
4
CY1
4
Q
1
Q
2
Q
3
Q
4
CY1
5
Q
1
Q
2
Q
3
Q
4
CY1
6
Q
1
Q
2
Q
3
Q
4
C
A
P
A
CITOR
IND
U
S
T
R
Y
Capacitors Semiconductors
Sources: WSTS Rpt. (act/est CY16 Q4, October ‘16), WCTS Rpt. (actual CY16 Q3) & KEMET Sales (actual CY16 Q4, December ‘16)
13
Critical for Success: Distribution Trends
*Data as of the end of Q4FY17
Asia Increases:
4 Local Distributors –
MnO2 Stocking
Best POS for FY17 - Up 5% Q/Q (9% Q-Y/Y)Best POA for FY17
Up 16% Q/Q
(20% Q –Y/Y)
CE
MnO2
Poly
Film
Al
TOK
$-
$20
$40
$60
$80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY16 FY17
M
ill
io
n s
INVENTORY
$20
$25
$30
$35
$40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY16 FY17
POA
AME EMEA ASIA
$25
$30
$35
$40
$45
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY16 FY17
POS
$-
$10
$20
$30
$40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY16 FY17
POS BY PRODUCT
14
Revenues Distribution
From concept to first demo
in 4 Months
Project remains on track,
”Alpha 2” demo @ EDS
Beta – User Acceptance
Testing to commence in
July
“…Industry Leading…”
$757.8M
5 Quarters of sequential growth
TOK
4%
+$6.2
M
19%
$12.8
1%
$1.6
8%
$5.2
4%
$0.7
48%
$1.8
6.2% Y/YPOS$
POA$ 15.6% Y/Y
INV$
No Inventory
Increase
3.1% Y/Y
FY17 Global Sales
KEMET (excluding TOKIN)
15
6.2% Y/Y
FY17 Highlights - Distribution
POS$
2.4% Unique Customers
– (Now over 130K with top 4 )
POA$ 15.6% Y/Y
INV$ No Inventory
Increase 12.3% Unique PN Sold
8.2% Y/YPOS$
Growth with Balanced
POA/POS
Growth in the High Service Channel
Longer and Taller ”Tail”
From concept to first demo
in 4 Months
Project remains on track,
”Alpha 2” demo @ EDS (May)
Beta – User Acceptance
Testing to commence in July
“…Industry Leading…”
TOK
4%
+$6.2M
19%
$12.8
1%
$1.6
8%
$5.2
4%
$0.7
48%
$1.8
TOK
7%
+$1.5
9%
$0.5
4%
$0.5
18%
$0.9
14%
$0.5
60%
$0.8
16
Sales Strategy
Head
50% of Revenue
< 1,000 Customers
Long Tail
50% of Revenue
> 180,000 Customers
17
Sales Strategy
• Direct engagements
• Design in and Solution selling –
• Balanced Pipeline of opportunities
Head
50% of Revenue
< 1,000 Customers
18
Sales Strategy
• Make more products available and easy to
find
• Channel Focus – Leverage our strong
position
• ”Using bits to sell atoms”
– KEMET’s Digital Engagement Platform
Long Tail
50% of Revenue
> 180,000 Customers
19
Sales Strategy
Long Tail
Apps
Engineering
Center
On Line
Simulation
Search
API
Stream
Content
Quoting &
Pricing Mgmt
DIGITAL ENGAGEMENT PLATFORM
“…Industry leading”
Discovery Decision Close
20
1990’s
Information
Flow
Teams &
Business
Response
Today
Over 50,000 Items
quoted every month -
Globally
(and Growing)
Speed Wins – Offer
the Right Price Faster
System Integration
AI providing IA
Data
Mining
Analytics
Seamless Digital
Collaboration
Machine
Learning
BI
Software
Connected
API
To further leverage our ”Easy To Buy From” reputation,
our channel management processes need to be faster,
smarter and more collaborative.
21
Looking Ahead
22
Next 10 years
Major Drivers
More Personal
Smartphone, TVs,
Medical, Consumer
Devices, PCs
Big Data
Computer,
Communication,
Medical
Infrastructure
Energy
Efficiency
Automotive,
Industrial,
Consumer
Uberization
Seamless Digital
Experience
PEOPLE
ADJACENCY 2.0
M&A
ATOMS & BITS
Looking
Ahead
Summary Financial Information
Income Statement Highlights
U.S. GAAP (Unaudited)
(Amounts in thousands, except percentages and per share data) FY 2017 FY 2016
Net sales $ 757,791 $ 734,823
Gross margin $ 186,112 $ 163,280
Gross margin as a percentage of net sales 24.6% 22.2%
Selling, general and administrative $ 107,868 $ 101,446
SG&A as a percentage of net sales 14.2% 13.8%
Operating income (loss) $ 34,540 $ 32,326
Net income (loss) $ 47,989 $ (53,629)
Per share data:
Adjusted net income (loss) - basic $ 1.03 $ (1.17)
Adjusted net income (loss) - diluted $ 0.87 $ (1.17)
Weighted avg. shares - basic 46,552 46,004
Weighted avg. shares - diluted 55,389 46,004
25
Income Statement Highlights
Non-GAAP (Unaudited)
(Amounts in thousands, except percentages and per share data) FY 2017 FY 2016
Net sales $ 757,791 $ 734,823
Adjusted Gross margin $ 187,923 $ 165,931
Adjusted gross margin as a percentage of net sales 24.8% 22.6%
Adjusted selling, general and administrative $ 93,952 $ 88,354
Adjusted SG&A as a percentage of net sales 12.4% 12.0%
Adjusted operating income (loss) $ 66,548 $ 52,816
Adjusted net income (loss) $ 23,916 $ 8,917
Adjusted EBITDA $ 105,255 $ 91,144
Per share data:
Adjusted net income (loss) - basic $ 0.51 $ 0.19
Adjusted net income (loss) - diluted $ 0.43 $ 0.17
Weighted avg. shares - basic 46,552 46,004
Weighted avg. shares - diluted 55,389 51,436
26
Quarterly Financial Summary
U.S. GAAP (Unaudited)
27
1. TOKIN results exclude the EMD business which was sold on April 14, 2017.
2. Net sales include sales between KEMET and TOKIN of $5.0 million, $7.0 million, $7.2 million and $6.2 million for the quarters
ended June 30, 2016, September 30, 2016, December 31, 2016 and March 31, 2017, respectively. Upon acquisition, inter-company
sales will be eliminated.
Financial Trends
Cash and Cash Equivalents (Unaudited)
28
1. TOKIN results exclude the EMD business which was sold on April 14, 2017.
Forecast Assumptions
Net Sales
l Total Net Sales projected to grow at a 2.2% CAGR from FY 2017 to FY 2022
Forecast does not include increase potential market synergies from cross selling
Gross Margin l Combined Gross Margin projected to expand from 23.6% in FY 2017 to 26.5% in FY 2022
Adjusted
EBITDA
l Total Adjusted EBITDA (excluding unrealized synergies) projected to grow at a 7.8% CAGR
from FY 2017 to FY 2022. Depreciation expense approximately $57 million prior to purchase
accounting effects.
Synergies
l Synergies of $11.3 million, $11.0 million and $8.4 million achieved in FY 2018, FY 2019 and
FY 2020, respectively
l One-time equivalent cash costs to achieve overhead reductions of $9 million, $7 million and
$4 million in FY 2018, FY 2019 and FY 2020, respectively
Other Cash
Flow Items
l Capital expenditures projected to increase to support increased production capacity to meet
additional demand, primarily for polymer products
l Working capital projected to remain consistent as a percentage of Net Sales
29
Forecasted Financials
30
$769 $792 $815
$340
$360
$392
$-
$200
$400
$600
$800
$1,000
$1,200
F Y 2 0 1 8 F Y 2 0 1 9 F Y 2 0 2 0
$
IN
M
ILL
IO
N
S
NET SALES
KEMET TOKIN
Sales includes ~ $25M/year of intercompany sales.
Forecasted Financials
31
$113 $116
$127
$37
$45
$55
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
F Y 2 0 1 8 F Y 2 0 1 9 F Y 2 0 2 0
$
IN
M
ILL
IO
N
S
ADJUSTED EBITDA
KEMET TOKIN
Forecasted Financials
32
$44 $44 $44
$-
$10
$20
$30
$40
$50
F Y 2 0 1 8 F Y 2 0 1 9 F Y 2 0 2 0
$
IN
M
ILL
IO
N
S
CAPITAL EX PENDITURES
Forecasted Credit Statistics
33
QUESTIONS
Appendix
Adjusted Gross Margin
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands, except percentages) 2017 2016
Net sales $ 757,791 $ 734,823
Cost of sales $ 571,679 $ 571,543
Gross margin (U.S. GAAP) $ 186,112 $ 163,280
Gross margin as a percentage of net sales 24.6% 22.2%
Adjustments:
Stock-based compensation expense 1,384 1,418
Plant start-up costs 427 861
Plant shut-down costs — 372
Adjusted gross margin (non-GAAP) $ 187,923 $ 165,931
Adjusted gross margin as a percentage of net sales 24.8% 22.6%
36
Adjusted Selling, General & Administrative
Expenses
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands, except percentages) 2017 2016
Net sales $ 757,791 $ 734,823
Selling, general and administrative expenses (U.S.
GAAP) $ 107,868 $ 101,446
Selling, general, and administrative as a percentage of net sales 14.2% 13.8%
Less adjustments:
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation expense 3,130 3,162
Legal expenses related to antitrust class actions 2,640 3,041
NEC TOKIN investment related expenses 1,101 900
Pension plan adjustment — 312
Adjusted selling, general and administrative expenses
(non-GAAP) $ 93,952 $ 88,354
Adjusted selling, general, and administrative as a percentage of net sales 12.4% 12.0%
37
Adjusted Operating Income
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands) 2017 2016
Operating income (loss) (U.S. GAAP) $ 34,540 $ 32,326
Adjustments:
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation expense 4,720 4,774
Restructuring charges 5,404 4,178
Legal expenses related to antitrust class actions 2,640 3,041
NEC TOKIN investment related expenses 1,101 900
Net (gain) loss on sales and disposals of assets 392 375
Plant start-up costs 427 861
Plant shut-down costs — 372
Pension plan adjustment — 312
Write down of long-lived assets 10,279 —
Adjusted operating income (loss) (non-GAAP) $ 66,548 $ 52,816
38
Adjusted Net Income (Loss) and Adjusted
EBITDA
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands) 2017 2016
Net income (loss) (U.S. GAAP) $ 47,989 $ (53,629)
Adjustments:
Change in value of TOKIN options (10,700) 26,300
Net foreign exchange (gain) loss (3,758) (3,036)
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation 4,720 4,774
Income tax effect of non-GAAP adjustments (741) 652
Restructuring charges 5,404 4,178
Legal expenses related to antitrust class actions 2,640 3,041
TOKIN investment related expenses 1,101 900
Amortization included in interest expense 761 859
Equity (gain) loss from TOKIN (41,643) 16,406
Net (gain) loss on sales and disposals of assets 392 375
Write down of long-lived assets 10,279 —
Income tax effect of pension curtailment — 875
Plant start-up costs 427 861
Plant shut-down costs — 372
Pension plan adjustment — 312
Adjusted net income (loss) (non-GAAP) $ 23,916 $ 8,917
Adjusted net income (loss) per share - basic $ 0.51 $ 0.19
Adjusted net income (loss) per share - diluted $ 0.43 $ 0.17
Adjusted EBITDA (non-GAAP) $ 105,255 $ 91,144
Weighted avg. shares - basic 46,552 46,004
Weighted avg. shares - diluted 55,389 51,436
39
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands) 2017 2016
Net income (loss) (U.S. GAAP) $ 47,989 $ (53,629)
Interest expense, net 39,731 39,591
Income tax expense (benefit) 4,290 6,006
Depreciation and amortization 37,338 39,016
EBITDA (non-GAAP) 129,348 30,984
Excluding the following items
Change in value of TOKIN options (10,700) 26,300
Net foreign exchange (gain) loss (3,758) (3,036)
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation 4,720 4,774
Restructuring charges 5,404 4,178
Legal expenses related to antitrust class actions 2,640 3,041
TOKIN investment related expenses 1,101 900
Equity (gain) loss from TOKIN (41,643) 16,406
Net (gain) loss on sales and disposals of assets 392 375
Write down of long-lived assets 10,279 —
Plant start-up costs 427 861
Plant shut-down costs — 372
Pension plan adjustment — 312
Adjusted EBITDA (non-GAAP) $ 105,255 $ 91,144
40
Forecast: Non-GAAP Reconciliation
41
A reconciliation of net income to Adjusted EBITDA as projected for 2018, 2019
and 2020 is not provided. KEMET does not forecast net income as we cannot,
without unreasonable effort, estimate or predict with certainty various
components of net income. These components include net foreign exchange
(gain) loss, further restructuring and other income or charges incurred in 2018,
2019 or 2020 as well as the related tax impacts of these items. Additionally,
discrete tax items could drive variability in our projected effective tax rate. All
of these components could significantly impact such financial measures.
Further, in the future, other items with similar characteristics to those currently
included in Adjusted EBITDA that have a similar impact on comparability of
periods, and which are not known at this time, may exist and impact adjusted
EBITDA.