AGM 2018

Apr 27, 2018

Good morning, ladies and gentlemen. I am Bill Ethington, Chair of the Board of Celestica, and I will act as Chair of this Annual Meeting of Shareholders. I welcome our shareholders, employees and guests to this overpowering room. We're not used to this. This, by the way, was the original branch of Toronto Bank, I guess, the predecessor to Toronto Dominion Bank. So that's why it's so grand. First, let me introduce the individuals other than myself who are proposed for election to our Board of Directors. I'll ask each of the nominees in attendance to stand and remain standing while introductions proceed. Once the introductions are complete, please give them a round of applause. First of all, Deepak Chopra. Deepak is a former President and Chief Executive Officer of Canada Post Corporation who is standing for election as Director of the Corporation for the first time at this meeting. Dan DiMaggio, Retired Chief Executive Officer of UPS Worldwide Logistics Group. Lorett Kilner, Retired Executive Chair of International Lease Finance Corporation, a subsidiary of American International Group Rob Mionis, of course, our President and Chief Executive Officer Carol Perry, retired Banker and former Commissioner of the Ontario Securities Commission Tawfiq Papatia, a Managing Director of Honest Corporation who represents our controlling shareholder Eamon Ryan, Retired Vice President and General Manager of Lexmark International Incorporated and last but not least, Michael Wilson, Retired President and Chief Executive Officer of Agrium Incorporated. Thank you all. I now call the meeting to order. In accordance with the company's bylaws, Betty Del Bianco, Chief Legal and Administrative Officer and Corporate Secretary to the Board will act as Secretary of this Annual Meeting of Shareholders. With the consent of the meeting, I hereby appoint Josette Coffeyberg and Eric Karamansian of Computershare Investor Services to act as scrutineers for the meeting. Betty will now report on certain procedural matters. Mr. Chairman, the notice of this meeting together with a form of proxy, the related management information circular and the consolidated financial statements of the company for the financial year ended December 31, 2017, as well as the auditor's report thereon, have been mailed or delivered to each director, the auditor and each shareholder entitled to vote at this meeting in compliance with applicable requirements. Copies of these materials are also available at this meeting. The scrutineers report that the requisite quorum of shareholders is represented at this meeting. Certain matters to be proposed at this meeting will be conducted by ballot. If you have already submitted a proxy, it is not necessary to also complete and submit a ballot at this meeting. If you are a registered holder or a proxy holder and you have not already voted or if you are a registered holder and would like to change your vote and you have not already received a ballot, please put up your hand and the scrutineers will provide you with a ballot. The ballot should be completed by marking an X in the appropriate spaces and must be clearly signed. If you are a registered shareholder, please print your name on the ballot. When you have completed and signed the ballot, please so indicate to the scrutineers who will come and collect it. Mr. Chairman? Thank you, Betty. I declare the meeting to be properly constituted. The first item on the agenda is the election of directors. I have the nomination of those nominees for director listed in the management information circular. Rob, could you go to the microphone just to make sure everybody can hear. Mr. Chairman, I nominate each of the following 9 persons to serve as a Director of the company until the close of the next annual meeting of the company's shareholders or until the director's successor is duly appointed, subject to the provisions of the company's bylaws. Deepak Chopra, Dan DiMaggio, William Ethington, Lorette Culmer, Rob Ionis, Carole Perry, Tawfik Popatia, Eamon Ryan, Michael Wilson. These nominees have all accepted their nomination. Are there any further nominations? As there are no further nominations, I declare the nominations closed. As Celestica has adopted individual voting for directors and a majority voting policy, we will be conducting a vote by ballot for the election of directors. In accordance with the instructions provided by Ms. Del Bianco earlier in this meeting, please drop your hand if you require a ballot. Does anybody require a ballot? When you have completed your ballot, please raise your hand and the scrutineer will collect your ballot and some may have picked it up at the front. While we are waiting for the scrutineers report on the election of directors, we'll move to the next item of business, which is the vote on the advisory resolution on the company's approach to executive compensation or as it is commonly referred a say on pay vote. Shareholders are being asked to approve a resolution on an advisory basis and not to diminish the role and responsibilities of the Board of Directors to accept the approach to executive compensation disclosed in the company's management information circular delivered in advance of this meeting. I will now ask someone to move that the say on pay resolution appearing on Page 21 of the Company's Management Information Circular be approved. Mr. Chairman, I move that the sale and pay resolution appearing on Page 21 of the company's management information circular be approved. Thank you, Leila. And a seconder? Michelle, thank you. The vote will be conducted by ballot in accordance with the instructions provided again by Ms. Del Bianco earlier in the meeting. Please put up your hand if you require a ballot. Thank you. When you have completed your ballot, please raise your hand and the scrutineer will collect your ballots. While we are waiting for the scrutineers report on this motion, we will move to the next item of business, which is the presentation of the company's consolidated financial statements and the auditor's report thereon. These were included in the annual report that was mailed to each shareholder who elected to receive the report and as previously noted, copies are available in the meeting available at this meeting. The next item of business is the appointment of the auditor of the company. May I have a motion? Mr. Chairman, I move that KPMG LLP be appointed the auditor of the company until the close of the next annual meeting of the company's shareholders or until its successor is duly appointed. Thank you, Todd. Seconder? And thank you, Wendy. I will now call for a vote on the motion, in this case, by the way of show of hands. Would those in favor of the motion, please raise a hand. Abstentions, if any, I declare the motion to be carried. The next item of business is the authorization of the Board of Directors to fix the auditors remuneration. May I have a motion? Todd, thank you. Seconder? Thank you, Enzo. I will now call for a vote on this motion by the way of show of hands again. Would those in favor please raise a hand? Abstentions, if any, I declare the motion carried. We're now waiting we'll wait for a few minutes. The scrutineer is going to bring the report on the votes conducted by ballot. They're getting their exercise because they have to go up and down the stairs at the back. So Betty will get that report and we'll give you a report in just a second. I have reviewed the scrutineers report. I did look at it and hereby declare that the individuals nominated are elected as directors. The scrutineers report also shows that each elected director received votes in excess of the thresholds established under Celestica's majority voting policy is described in the management information circular. With respect to the motion to approve the advisory resolution concerning the company's approach to executive compensation, which appeared on Page 21 of the circular, the Scrutinaries report shows that a majority of the votes cast at this meeting were voted in favor of the motion. So I declare that motion carried as well. The number of votes cast in favor of, withheld from voting, or voted against each item of business at this meeting will be reported as part of the report of voting results to be filed following this meeting. As there is no other business to come to the meeting, I will entertain a motion to end this formal part of the meeting after which we'll proceed with the management presentation. Mr. Chairman, I move that the meeting be terminated. Thank you, Jeff. 2nd? Those in favor of the motion, please raise a hand. Contrary of any, I declare the motion carried. I'll now invite Rob Mionis, Chief Executive Officer, to give a presentation from management of Celestica. Following his presentation, Mr. Myones and Mr. Mandeep Chawla, Chief Financial Officer will take questions. I would also like to welcome those who are joining us over the Internet for the webcast to this management presentation part of the meeting. Thank you all. Rob? Thank you, Bill, and good morning to everyone in attendance, and good morning to those listening on our webcast. 2 years ago, we put in place a roadmap to accelerate the growth of Advanced Technology Solutions or ATS and to expand Connectivity and Cloud Solutions or CCS into higher value added services. We continue to believe that this is the right strategic path and both of these initiatives will position Celestica for long term growth and stable profitability, and I'm pleased with our progress to date. Our goal is to further advance these initiatives in order to respond to the ever changing and volatile dynamics of our industry and our customers' businesses. In 2017, we saw how challenging CCS can be, but importantly, we also recognize the benefits of growing ATS. Now I'll begin by talking about ATS. ATS encompasses diversified and growing industries and end markets, which are high complexity in nature and at the early stages of outsourcing. ATS primarily includes our Aerospace and Defense, Industrial, Smart Energy, HealthTech and Semiconductor Capital Equipment Businesses. Growing ATS, which currently represents about 1 third of our total revenue, but now represents over 50% of our profits, remains one of our top priorities as we seek to expand our capabilities and diversify the company's revenue and earnings. In 2017, revenue of $1,950,000,000 from our ATS end market was relatively flat compared to 2016 as growth from strong demand and new program wins was offset by a 7% revenue decline due to our exit from the solar panel manufacturing business. We have been investing in ATS and over the last 2 years, its overall margin profile has significantly improved from 2.1% in 2015 to 5.2% in Q1 of 2018. Q4 2017 also marked our highest quarterly ATS revenue in over 5 years at just over $500,000,000 And I was pleased to announce our earnings call this morning that the ATS team raised the bar again in Q1 with record revenue. With our growing scale and expertise in these markets, ATS continues to benefit from new program wins. In fact, we experienced the best single quarter of bookings in the last 4 years in ATS in the final quarter of 2017. And we believe we can continue to build on this momentum going forward. We anticipate ATS revenue increasing over the coming years, driven by growing end market demand in our targeted markets. We also see ATS customers accelerating the level of manufacturing, supply chain and product lifecycle management they are outsourcing. We believe that in addition to the growth opportunities available in these diversified markets, the requirements of our customers align with the value proposition of providing solutions for high complexity end to end product lifecycle solutions for highly regulated products. Celestica is increasing its presence in the aerospace and defense industry. We deliver innovative end to end high quality solutions in the areas such as advanced avionics, guidance controls, power distribution and cockpit instruments. We are also expanding our capabilities and presence in this market through targeted acquisitions that enhance our capabilities and grow our customer relationships, as demonstrated by our recent acquisition of Atren Integrated Solutions. Now Atren is a leading designer and manufacturer of ruggedized electromechanical solutions, serving multiple markets, primarily for military and commercial aerospace applications. We anticipate this acquisition will add over $80,000,000 per year in revenue to ATFs. We also believe that Atren's strategic value to our business is significant. Atren's capabilities include design and engineering, backplane and connector manufacturing and ruggedized chassis enclosures for air and land A and D applications. These key capabilities combined with a solid track record of servicing global leaders in commercial aerospace and defense aligns well to our strategy. While Aerospace and Defense business is a key building block for ATS, we continue to look for other opportunities to drive growth and expand our capabilities. For example, in HealthTech, we have one strategic business that is driving our growth in this important industry. We provide end to end life cycle solutions for highly regulated products such as handheld surgical instruments and electrosurgical equipment. In semiconductor, we are providing high level assembly and precision machining for the world's leading semiconductor equipment manufacturers. These companies are focused on meeting the strong demand associated with the proliferation of semiconductors in a growing economy where all things are connected. Shifting to smart energy, Celestica provides advanced solutions and services for power generation, power conversion, monitoring, controls and storage to support our customers in this dynamic and complex market. In our broad industrial category, we are seeing significant opportunity for Celestica. In particular, we believe our areas of strength in this market include smart metering, test and measurement, high volume industrial solutions and industrial automation and control. Overall, our focus on the ATS markets represents what we consider to be an important opportunity for Celestica to drive revenue growth and improve overall profitability. In ATS, we finished 2017 strong and we are already off to a great start in 2018 with a record Q1 revenue and solid operating performance. Now let's take a look at our CCS business. In CCS, we enable some of the world's most innovative companies by delivering advanced engineering capabilities and global supply chain solutions for the technology that connects the world. CCS consists of communications and end markets and enterprise end markets, includes designing and building routers, switchers, servers, storage and optical devices that in essence are the building blocks of today's global digital economy. CCS is a highly competitive market characterized by relatively sharp product life cycles and consistent pricing pressures. Despite the difficulties in CCS end markets in 2017, particularly in the second half of the year, we were still able to increase Communications end market revenue by 4% compared to 2016 and maintain relatively flat revenue from Enterprise end market. In this competitive environment, we are working with our customers to develop solutions that not only meet their needs, but can also help drive better financial results for Celestica. As our customers transform their product and service offerings to meet the needs of their customers, we believe they are looking to us to be more than a manufacturer. They want us to be a partner, not only a manufacturing partner, but a design partner, aftermarket services partner, a partner that adds value and provides intelligent solutions. And as such, we are investing in platforms and services to become an end to end product lifecycle company. For example, on the joint design and manufacturing or JDM front, we see steady growth. Our JDM portfolio includes fully customizable solutions that supports our customer strategies so they can deliver unique, differentiated end products to their end markets. We work hand in hand with our customers, driving innovation and helping them rise to the challenges of rapidly evolving markets. In 2017, we launched 29 new JDM programs and added 12 new JDM customers. In addition to JDM contributing to better financial results in this segment, we anticipate that this value added service will continue to grow in the coming years as we help fill in OEM product roadmaps and provide custom solutions for customers such as cloud providers. We have leveraged important new capabilities in expanding this business in 2017 and JDM represented 10% of our CCS sales with revenue growing 12% compared to 2016. Since starting this service in 2010, we have delivered over $1,800,000,000 in sales in routers and switches and service and storage solutions with over 40 customers And we believe that we continue to win programs at JDM because our strong product roadmaps, our solid design and engineering teams and our advanced manufacturing capabilities. Now looking ahead, we will continue to implement our exciting and comprehensive transformation strategy, including a redesigned organizational structure that is becoming even more customer focused. We are also investing in cost management programs, including our $50,000,000 to $75,000,000 restructuring program across our global network. These programs are intended to allow us to further accelerate our productivity initiatives to reduce costs for Celestica and our customers. In addition, we continue to streamline our processes by investing in automation and the connected factory. These investments are intended to help us drive greater orchestration through our factories by automating and connecting our people, our equipment and our processes throughout a global network and leveraging data analytics to drive greater speed and accuracy of decision making. As we look ahead, our teams remain focused on becoming the company our customers need today and in the future. And as such, we intend to continue to build on the fundamental priorities I established when I first joined Celestica. These priorities include growing and diversifying our customer and product portfolios through organic growth and acquisitions, increasing consolidated margins through growing our ATS businesses, while continuing to invest in capabilities intended to expand our solutions, generating strong annual free cash flow and adjusted return on invested capital and improving execution and increased productivity and simplification throughout the organization. In addition, capital allocation continues to be a top priority. We will continue to invest in growth initiatives and we also remain committed to enhancing returns to our shareholders through share repurchase programs. To this end, we launched a normal cost issuer bid in November of 2017, allowing us to purchase up to 10% of our public float through 20 18 November. And as of the end of March, we have already completed over 50% of the program. 2018 will be another important year for Celestica and already we are off to a solid start with our Q1 results released this morning. Full details on our results are available in our press release, but let me mention a few highlights. Despite the continued volatility in our CCS segment and the very constrained materials environment seen across the industry today, we delivered on our Q1 margin and revenue targets driven by strong results in ATS. We reported record revenue in ATS of 5 $33,000,000 up 8% from last year and up 4% sequentially. And as many of you know, in 2017, we made a change to our organizational structure that created 2 reportable segments, ATS and CCS. As part of this change, we're able to increase transparency on Celestica's profitability drivers between ATS and CCS, which should provide additional insight into our strategy and diversification focus. Importantly, as our new segment disclosure highlights, our growth in ATS is accompanied by a strong and stable margin profile. Year over year segment operating margins in ATS for Q1 were up 50 basis points to 5.2%. ATS is now contributing greater than 50% of total segment income. And should help better stabilize the volatility from our CCS results. In CCS, we continue to see the volatility in Q1 that we first highlighted in the second half of last year affecting revenue and margins. Overall, CCS revenue was down 2% on a year over year basis, but in line with our Q1 target range. The impact of the volatility in this segment was most reflected in the change of our operating margins, which dropped from 3% to 1.7% on a year over year basis. We expect these margins to show improvement throughout 2018 as we complete our restructuring and other productivity initiatives. By the very nature of its end markets, CCS is more volatile than ATS, but we have significant experience in effectively managing this volatility. To conclude, we are proud of our reputation both on the quality of our people, our ability to solve complex challenges and our expertise in advanced technologies. We're excited for the future and we remain steadfast in our commitment to drive shareholder value. That concludes my formal remarks. And on behalf of the entire Celestica team and our Board, I would like to thank you for your continued interest and support. Now I'd be happy to answer any of your questions. Nadeep, would you please join? No questions. That concludes our meeting for today. Thank you very much for your