Investor Update

Jan 7, 2020

Slides

Ladies and gentlemen, welcome to the Nextiva conference call. I am Sandra, the Chorus Call operator. I would like to remind you that all that this will be in listen only mode and the conference is being recorded. To be recorded for publication or webcast. Please note that the funds for this call are available on the debt field website that's either.com in this afternoon, Investors, and publications. At this time, it's my pleasure to hand over to Mr. Dean Slanders, CEO, and mister Reyes, CFO. Please go ahead, gentlemen. Yeah. Thank you very much. Good morning to Galette, and welcome to this conference call. I'm happy that you are taking the time to learn more about that one as new focus on the ceiling business. I will start with the slide 2. As you heard, Richard Klein on the other page. As communicated with the HialCL report 2019, that WiLAN has carefully evaluated the particular options for the distribution business and the technical components division. Then why I meant in the distribution business as changed significantly in the recent past. The growing online trend and increasing demands from customers suppliers and regulatory authorities have shifted fixed costs in critical mass awards. That's why I recognized this trend and had attempted to achieve critical path towards a basic acquisition in 2016. With the plan takeover of Premier Farnell. I suppose that on few have it in mind. Following Aetna acquisition of Premier for now, there are not enough other acquisitions target in the market to reach critical size quickly enough. At the same time, we have established leading positions in the ceiling business in attractive global markets. The Board of Directors has therefore concluded that that all I can leverage shareholders' capital more profitably in the ceiling business. As a risk price on the 23rd December, we have announced the sale of our distribution companies is to collect a need for the German company Originals. This year is due to be concluded in the first quarter of 2020, subject to the fulfillment of reasonable conditions for completion. The parties agreed not to disclose details of the transaction. For the sale of Ryprices, we are taking the time to evaluate further options, to optimize the value. For the time being, the licensed CEO will report directly to me, but without being a member of the executive management, And now our CFO, Rachel Guido, will provide you with some other financial information of the transaction. Please, Welcome from my side. I refer to slide 3. The west point of bottleneck and navy will result in a loss would adapt to our group of around CHF670 1,000,000, which will have no impact on liquidity. This amount comprises the following positions from CHF 420,000,000 of goodwill consisting of Alpha Goodwill of $300,000,000, distillate goodwill of $50,000,000 and the Navy goodwill of $90,000,000. In addition to the SEK 420,000,000 in goodwill, there is some SEK 50,000,000 cumulative currency translation adjustments to be offsetted against the equity. This is, equity for the foreign cut to our companies at our disposal. Some $180,000,000 is impairment on assets. And finally, some CHF 20,000,000 mom of course for the restructuring of the group are included in the CHF 670,000,000 as a total amount. A significant portion of the 20,000,000 relates to potential contract or IT obligations with regards to the carve out of the distillate and ADI systems. The final figures will be disclosed in the 2019 annual financial statements. As you know, that law prepares its reports in accordance with the Swisscap Air Accounting Standards, and offset goodwill from acquisitions against equity when the acquisition is made. In the case of a sale of previously acquired companies, Swiss Cap Fair requires the goodwill offset against equity to be taken into account at additional cost to calculate the gain or loss charged to income. As this relates to the treatment of past acquisitions in the accounts, the divestment loss has no impact on the cash and cash equivalents of the DATOLLO Group. The inflow of the sales price will increase cash and cash equivalents after the divestment has been processed. Any negative impact on the balance sheet is limited through the impairment on assets and the one off costs for restructuring. On the slide, you see our balance sheet at midyear 2019. At significantly above 50%. The equity ratio will still be very solid after the transaction has been concluded. Flat Violet Airport has excellent financial resources for implementing the growth strategy defined. So if this, I hand back to Dirk. Thank you very much, Rachel, for this explanations, and I would like to continue with slide number 4. With the decision to divest, which was solution business, that Werner will focus on the fast growing and high margin ceiling business for attractive global markets. Based on the recognized core competencies, we have become a value development partner for high quality, put some critical ceiling components and the health Kire And Automotive Industries and beyond. Thanks to the successful growth strategy, revenue and the Seiling business has more than doubled since 2011 to 1000000 in 2018. Operating profit have doubled to 155,000,000 in the same time periods. By expanding existing plans constructing new players and acquiring and matching companies, we have established a global presence at the same time opened new industries and technologies. All of our system critical components have in common that they make a crucial contribution to the functioning of our customer systems but account for only a very small portion of the top of the systems. Now I continue now with the slide 5. And the recent past, strong growth of the ceiling business has weakened some of the benefits of the merger of the 2 former division's Pharma Packaging And Sealing Technologies. The site also organization has slowed down our decision making processes, responsiveness, and technological development. And one of the strengths in our market focus boost proximity to our customers use our long standing cost of expenses more efficient way and makes the organization more agile, but while I have decided to redefine the group's organization, We will combine our market and production activities to form 2 business areas, health care solutions and industrial solutions. These two business areas will be supported by the new technology and innovation and finance and shared service setup units. In 2018, the Business Area Healthcare Solutions generated the revenue of some 319,000,000 Industrial solution achieves a turnover of 500 modules. The previous holding functions and the functions of seeding solutions divisions will be merged. And now I continue with the renewed executive management on the slide 6. Thanks to our systematic talent management. We have secured 3 managers with proven records from our older ranks as new members of the executed management. While the shares will succeed Rita Valde as Chief Financial Officer of the 1st April 2020, and the role of CFO. He will have the new finance and shared service units. As CFO, of the technical components division, either share, successfully give a look to the division's financial organization from a decentralized branch oriented structure to a central organization with a shared service center. Our previous CFO, Rachel Wilson, has decided at its own success to retire at the end of March 2020, after 10 years at deadline. I would like to express my temporary thanks to Rato relative to his reality an exceptionally valuable work and wish them all the best in the next phase of his life. The industrial solution business unit will be led by talks to last year as CEO of Stepwireless Fieldingsolutions The division here has successfully developed the division over the past 3 years and placed an important part in working out a new organizational structure. The Healthcare Solutions business unit will be managed by the Evoque And Future among other projects Deapbox was responsible for developing the sector leading Deviner 1st line production standard and was previously in charge of all production locations in the Zealand Solutions division. I'll share will take over the management of the Needham Technology Innovation Group function. Bank has used to be responsible for research and development in this Solutions division. In the recent years, he has successfully driven the establishment of the global research and civil organization focusing on digital knowledge management. With the completion of the sale of these selected native the first quarter of 2020, New Harrison will step down from the executive management the broader directives and myself would like to thank you for the hard work and dedication so that we will open the distribution business and wish him all the best for the future. I know I will continue with the Slide 7. With the proactive reorganization of the group announced today, we want to preserve the synergies and economies of sales of the previous structure and realize and mentioned new benefits while optimizing our cost structure. The new structure will make our organization much more flexible and agile, speed up decision making and increase the exchange of information and knowledge. I'm very convinced that the new organization will enable us to implement our strategic priorities more quickly including driving profitable organic growth, increasing agility and accelerating the digitalization. I now come to slide number 8. With technology and innovation, we have to separate new service organization units. We want to make Our core competencies and decades of experience available to our customers in better and more beneficial Our strong market positions are based on our recognized core competencies in solution design material exercise and operational excellence. In the solution design, our emphasis with generic teams are assist our customer with fast prototyping for tailor made civil solutions. Our successful Czech repos makes us a recognized coengineering partner of our customers. Our in house morning shop with latest technologies provide for industry leading flexibility and precision. With our long term material expertise, we are able to develop high performance materials for most challenging requirements and various applications. Our in house mixing plans enable us to produce unique phone flows. Operational excellence to drive our capability to set industry standard and apply them worldwide. With 1st line for health care components, and clean for automotive components, that while our operating industry leading production standards with 0 defects silography and highly automated production cells. It is important, to understand that only those 3 competencies are aligned and converters. You are in the position to offer the best ceiling solutions for the market. On slide 9, you see that the year 2018 marks the tip of our investment program and the Siemens Solutions division. This slide summarize the strategic investment projects and acquisitions since 2015. Of the construction project only the expansion of the Indian Healthcare plant is still in progress. In the near future, the focus of the investment is more on the modernization expansion of the ERP software and on digitalization projects. With all these investments, we have created a really strong base for accelerating our organic growth and attractive global markets. Due to some internal delays, the detailed office by customers and the long lead times for new projects, raised from the listed investments will increase slowly, but steroids in the coming years. Slide 10 summarizes now the track record of acquisitions in the Seating Solutions division then which is very important to explain it to you. Since 2012, we have successfully integrated 7 companies with more than 3000 employees and more than 250,000,000 sorry, 240,000,000 of revenue with the executed acquisitions we have handed in new geographies as was Chengdane, Hancock, Colombia, and bins are entered into additional industries as was Oregon, and parcel and have opened up new technologies as with us. Meanwhile, the Seiling Solutions division as the proven M and A process for identifying acquiring and integrating companies that fit to our strategy and culture above all, acquisitions target must support our core competencies, match our values and have the potential of sustained profitable growth. We want to continue to support our organic growth. And it's very important for me that you understand that we selective bolt on acquisitions as we have been doing in the senior business during the past 8 years. Now with that, I would like to close my short presentation and thank you very much for your attention. And now we are available for your questions. We will now begin the question and answer session. You will hear the tone to confirm that you have ended the queue. If you wish to remove yourself from the question queue, you may press star and 2 Participants are requested to use only handsets while asking a question. The first question is from Charlie Fadembach from AWP. Please go ahead. Is my assumption correct that the between the 2 new business divisions, industrial solutions, and health care solutions, that has a gap in profitability, that health care solutions is more profitable than industrial. It's question 1. Question 2 is, dividend. I know that the board is responsible to speak the dividend, but is the loss operating loss for 2019 of almost half a 1,000,000,000, rather argue against the dividend, or is it rather the argument that it's not, there's no influence on cash. So you could pay a dividend anyway. Section 2 and free is acquisitions you're looking for, external health as well. Is it rather industrial or health care or both? Thank you very much. Yes. And Charlie, thank you very much for your for your questions. Let me come to the first one that is regarding the profitability. Yes. It's a it's a small gap between those 2, systems units. That is clear. But please understand that we cannot disclose it today. I will come back to that during the PMK in February. If it comes to the dividend payment, since that we have no negative end on the liquidity, you can assume that the Board of Directors, will define the dividend based on the operating results and therefore our target level for the dividends even in the last year was around 20%. Of course, the final decision will be coming with the announcement in February, but that is a target. With regards to acquisitions, I think It's, now we have, first of all, we have to optimize the organization. We have to go into detail. And I do not like to do every second, Pato and Leo, we have some ideas of global acquisitions. And as you know from the past, of course, we still have a topic in China with health care and we are still trying to identify funding there. And however, as we have shown in the last and the last years, wherever we see a chance we would like to have support on acquisition even though health care or and this industrial solution that will show what opportunities will turn up in the market. Thank you very much. You're welcome. The next question comes from Sarah Robster from Credit Suisse. Please go ahead. 3 questions. First one is the remanufactured breakdown of the loss of 670,000,000 Then you disclosed that the one of calls has been 20,000,000. So this is cash as the other is non cash. I have to mention that there was no impact on liquidity. So this tells me that you got 20,000,000 of cash from the from the buyer. Is this correct? This would be the first question. The second questions would be on overhead costs. What about the overhead costs today, covered by technical, consonants now have to be covered by sealing solution. How much is this? What is the impact going forward? Also on the margin of dealing solutions. Your second question. The third question is, what about the timing. I think you mentioned that one of the consolidation will happen. I'm not sure whether I can call it first. When does the consolidation, will be a captain? And secondly, when will be the sale of Radihood? What's your time frame? Is it 3 months, 6 months, 12 months, or 10 years? This would be then the next one. And before I could, could you, inform me, a marginal 7 to 8% for I go? Is this true? Richard, I think we will start. Yeah. As I mentioned, there is no impact on cash but I did not mention any prices as this information is confidential. So I would speak to what I stated assumption is that there is no impact on cash. In terms of deconsolidation, I will answer the question number 3. Targeted deconsolidation should take place by the end of February. That's at least the targeted date for you are aware that whenever acquisitions or divestments are taking place that there is some regulations to be respected. This takes its time. Therefore, kind of assure 100% that it will take place by the end of early that's the targeted phase. Yes. Then I would come to the number 2 and 4. Number 2 was regarding the overhead caused by understood drive. And of course, we have currently some overlapping functions which we have to satisfy in detail, how we deal with that. And finally, our target is to reduce the overall cost we have finalized the full organization. So that will, of course, will not dilute margin of the former Chicken Solutions. And if it comes to Rygiel, but it will not take 10 years. That's what I can tell you. Sure. But I can't tell you. Was that in the short term in the next couple of months or maybe it will take 1 or 2 years? For us, it's more important that we have here the best and a good price for this good profitable business and it's a knock on some format. In our sense that arises is on a higher single digit range, but we will tell more about that when we have our BNP in February. Yeah. If I'm not wrong, the goodwill of, right, on the 70,000,000 is this correct? And then, secondly, do we have to speak further CKS also for, Rygant? And what's about the cost for the investments of Rygant? So what what do you expect? The goodwill I mentioned for Rysel, is correct. As you can see in the annual reports, And TCI, yes, CTA, of course, there will be a CTA in you remember, when we bought Chrysler that was in 2010, of course, euro currency at that time was a completely different level, And in case of a potential divestment there would be a CTH dimension, I cannot mention you upfront because that will depend on the in a currency situation. Our next question comes from Christian Bolson, MainFirst. Please go ahead. First question, again, as well as a bit fast at the beginning, can you just give us the separate items of the $670,000,000 loss I just got the 1,000,000 distribution. Do you select the goodwill and 1,000,000 needs goodwill? Can you just remind us of the remaining figures for details? Second question might be, how will be the reporting below the sales line going forward in the ceiling divisions? Will we get EBIT's cash flow numbers, routing numbers, like, 2 months. And the last question will be on the, the dividend strategy. As you say, you will have a a lower investment CapEx need going forward, will there be probably a change in the in the use of cash? So coming back to your first question, details of the SEK870 1,000,000 is SEK420 1,000,000 patel in total. The L4 goodwill of 300,000,000 is to like 30,000,000, maybe 90,000,000 Then I mentioned $50,000,000 currency translation adjustments. There's $180,000,000 impairment on assets and CHF 20,000,000 one off costs for the restructuring of the group. Please read your second question regarding reporting structure, you know that we are reporting according to sweet crop period and there is some minimal requirements regarding the segment information that we give So you will at least that sales figures, the rest will have to decide. Yeah. And if it comes to the candidate, WT, as I as I said before, now we have last year that we would have around 40% of the net result. And I do not see any need for change currently. But however, that is up to the business that is running and let us discuss that later point of view. Yes. Maybe we come back to that with VMK in February. I think that answered your questions. Right, Kristoff? The next question comes from Michelle Livcar from Bank Von Pobel. Please go ahead. Good morning, gentlemen. Thank you very much for taking my questions. First one, would you mention, picking, a CapEx cycle? Can you mention maybe, what what do you plan to spend as a percentage of sales going forward for the next 2, 3 years. Then second question, just in terms of, seeding solutions, do you plan to also develop some some new markets? Do you see some kind of white gaps that that you would like to fill. And then a third question, can you maybe tell us how the networking capital will change after the divestment of Neddes and, this relic. Thank you. Okay. Let me start and to answer the questions, 12, and I'm asking, Rachel to answer the questions. Right? If it comes to the, a CapEx called an, next for the next couple of years. Please give us some more time to go at that route. At the beginning of February. As I said already before, I think the, the top CapEx, the investments level will be down over the next couple of years because the major investments, exceeding solutions we have now done in the last couple of years. However, nobody knows if we have some great ideas for the future maybe we have to invest and we will do that then. So but for for today, I can only tell you that according to what we have said before, we will, over the time, to be used in reference. And in the detailed, levels about that, I will explain to you about BNP. If it comes to, new markets, new technologies, of course, will always driving forward to identify new markets or maybe new technologies will help us, let me say to improve, to give a better service to our customers. And that is one of the reasons why we are looking forward on acquisitions which are able to support this. On the other hand, that is one of the reasons why we have decided, to build, let me, and and the service as unit, technology and innovation because one of the main tasks is that we would like to accelerate the innovation process for new product lines, so which are developed internally. And we have some great product lines already let me say under development and I'm, hope that we can announce something in the next 12 months, which would help us to grow, from the organic absorption here. So that is what is coming up in the next a couple of months. And then I'm looking forward to give you more information about that later on. Yes. Rachel, can you go on with the Yes, regarding your last question regarding the net working capital levels for the remaining group, I can assure you that, aging on the Sealing Solutions business and, including the rifle business, The network capital level in percent of sales will further be reduced on the timeline. We are constantly working on optimizing our network capital levels and this is the divestment of the Natix business and for this select business, there will be a positive impact on the as I said, the percentage of the net working capital compared to sales as the distillate internet is business are quite healthy. Regarding net working capital, Verizon, on the other hand, is, very well managed and very well organized net working capital level. Okay. Thank you very much. The next question comes from Daniel Kearney from Global. Please go ahead. Yeah. Yes. I I had a one similar question on CapEx. I want to rephrase the previous question and how much CapEx, the tinnitus, and this product have in 2018. Can you give me some kind of indication how much that cost so I can readjust it going forward? Thanks. Well, maybe some just like take note of, very big amounts we are actually talking a couple of 1,000,000 below $5,000,000 in total CapEx in 2018, you asked. The next question comes from Paul Saranda from Helia. Please go ahead. Just to follow-up, you mentioned the focus on bolt on acquisitions in which enterprise value change should we think for this kind of acquisitions? Absolutely. Happy New Year, Rose. Can you please repeat the bottom me see what is regarding the boardroom position? Can you repeat it, please? Oh, yeah. Of course. So for bolt on acquisitions, which size enterprise value are you hinting there? Okay. The one thing is the asset price value of the other thing is the bottle size, yes. You know, that depends on the motor and the house to have profitable businesses. What we are looking here is when we are talking about bolt on acquisitions currently, I'm looking forward to acquisition which we can, more or less easily integrate, as long as I am, that is very important to understand. And I would like to repeat it here as long as these acquisitions sits to all our core competencies and to the cultural split of our organization. And let me the turnover what we are looking for is up to 50,000,000, 60,000,000, but at minimum, it's what we have around 20,000,000. And of course, the enterprise value could be different ones and depends on the quantity of the business. Okay. Thank you. And I wanted to do it then, understand why that this job is small, which will looked to buy something in March? I think based on what's on our experience in the last couple of years in solutions. I think we managed that quite well with integrating, the spot only ones. I do not would like to exclude that, that we have maybe an acquisition in the future, which is larger. Maybe around 200,000,000 something like that. But we do not have something in our portfolio, which is what we are looking for currently, which is in this space. So we are focusing on the smaller ones, which is bringing our especially, incentives to that. Existing systems, yes. Okay, thank you. And then looking at the strength of your balance sheet, going forward, how would you ideally like to run the company? We have a certain, limitations regarding the equity ratio. Board of Directors clearly stated that there is a minimal target of 40% equity ratio. So as you realize, there is, of course, still some potential. And we would like to, level 2 to lift, we will level out this potential, but that's the situation. All right. Thank you. And on these acquisitions, what are your financial return requirements? Also, Paul, I think with regard to the acquisitions, it's a important, it's and acquisition and volume acquisition is bringing us forward. That means adding some further competencies to our organization, etcetera, sticking to other aligned with our customer portfolio or technology. And therefore, I think we are having an integral look to every acquisition and then we are looking for what is the internal rate of return for that. Maybe I maybe I didn't get it. What you did you mention the financial criteria or not? I see that regarding the financial criteria, we are looking more if this acquisition is in the long term perspective as was paid acquisition, and that is very important for us. And therefore, we will always have an individual look to the acquisitions and then we will having a calculation of that, what is needed, to get as a result. That means, of course, every acquisition should have some benefits there. All right. Thank you. No further questions. Edward Rose. The next question comes from Richard Furey from Jeff Hagee. Please go ahead. Hello, everyone. Just regarding the reporting of Ryals, you have mentioned that direct reporting line to to date. So what can we as public expect? So what what could be shown to to us? And secondly, just just to to to make sure that I'm the right way as if the timing the closing of the 3 is expected by endofFebruary 2020 as I write that the assessment losses will flow into the 2020 numbers, or do we need to consider something for 2019 as well? Thanks. Yes. Your first question regarding the reporting thresholds, I and answer a similar way as I did already for the Sealing Solutions business. There is minimal requirements in Swisscoffier. Which for the Ryzhik business, that it would be a separate segment with regards to, this, perspective, we would at least have to give you the information on sales, whether we will do additional information, we will we will see. But minimum requirement is sales. As you correctly said, the closing is targeted by the end of February 2020, Now in the case of the deconsolidation by the end of February, the goodwill will turn into the profit and cost and the CTA will turn into profit and loss. As we already, as I mentioned, are confronted with impairments on assets This impairment plus the restructuring cost as you might imagine will have to be taken into account in the Annual Report 2019 already. So there is a separation of the $670,000,000 into 200,000,000 roughly that will have to be taken into account in 2019 and the rest with the deconsolidation will then be shown in 2020. Okay. The next question comes from Sebastian Sogel from UBS. Please go ahead. Hello. I have a couple of questions on the tech side of things. For previous discussions, I recall that you in the past that if you keep some part of the business till the year end, 2019, you will see some positive tax impact for your 2019 numbers. Is that something that could eventually situation where you see a tax rate that is below the numbers, below the rate that we have seen in 2018. And then, of course, with regards to the whole situation as customer need to go about the partially of the amount setting into 2019, partially in 2020. How should we think overall on your tax rate? Because of the whole transaction. And, of the 1,000,000, that's the last question. That's post tax. That would be my 3 questions. The $670,000,000 starting with your last question is actually on a debt level and it's also post tax. Tax rate will not be, will not see a big change compared to 2018 and also for the future there is no big impact out of this loss because as I mentioned, it actually turns just from equity into the P and L, mainly the goodwill and the CTA, and they do not have tax effects. The next question is a follow-up question from from Credit Suisse. Please go ahead. Yes. Thank you much. Again, you have been guiding for an equity ratio of 50%. So at least this reduction of 170,000,000 of the equity. This is about the, or it's equal to the impairment of the assets. So that's fine. But looking forward, with the net working capital change, is this now a real guidance because we should expect a reduction of the bank. She isn't So with that, so then I never think it's a reduction. So with that, the equity ratio should be clearly higher. So what is the guidance including the net income capital optimization of the AT and T ratio. And the second question would be to expect the 30 transaction costs in 2020. 4, and and and and then I hope. And for alpha and then and then this, like, or I hope. Starting with the second question, we are trying to take into account all The transaction costs in the 2019 annual report should not be further restructuring or transaction costs out of the sale of the distillatec and ladies business. And, for the guidance of the equity ratio, just let's finish all all the effects. So let's see all the effects out of the divestments. And, as I said, we can give you a first guidance that the equity ratio even after the transaction should be higher than 50%, not taking into account further improvements on net working capital, at least as a first answer. You? That's your judgment. I just give a first indication on that. The level should be higher than 50%. Okay. Many thanks, Fred. And it's really tricky that you will live in the company. I like to hear you very much. The next question is a follow-up question from Mr. Michelle Li Shwar from Bank of Provo. Please go ahead. Thank you very much for taking my follow-up question. It's just one. I just want to know how does a civil engineering fit into your new organization. Does anything have changed? Is it still a noncore asset, or did you reevaluate this also? It's, like, for the question, Michael, I think that is, CFC4. That is noncore. And, we still trying to find the right solution for the civil engineering, which is approximately 1,000,000 of sales in 2000 18. So that means, that is we are still trying to find a solution for that. Okay. Just one to hold on. No more questions. Okay. Then I think, thanks a lot for all your questions. And I wish you all a a further good start in the year 2020, and I'm looking forward to see and to hear you in February of a lunch media conference and we will have some further information there for you. And thanks for your attention today. And I wish you a good rest of the week. I'm looking forward to see you again. Thank you very much for my side. For all of you. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call. Thank you for participating in the conference. You can now disconnect your lines. Goodbye.