Taking the Next Step - CBSPros and cons of investment structures APPENDIX 43 Structure type Pros Cons Licensing • Cost effective route to getting a product to market • It is a

Taking the Next Step Team Sauder

Jarl Greve | Nadine Raida | Morten Juhl | Sebastian Kersting

By expanding distribution and initiate production in India Nord-

Lock can gain 1.5 BSEK by 2019

EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 2 CBS |

Introducing 2 main initiatives… … will bring you 1.5 BSEK in revenue by 2019

Expand

Distribution in Japan

Initiate

Production in India 694

321

168

318

1501

0

200

400

600

800

1000

1200

1400

1600

2015 Status quo Korea Japan Total2015 Europe/

America Korea Japan 2019

mSE

K

Re

venue

Nord-Lock has a wide global presence but has mainly focused

on the European region

EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 3

Source: Company Material

CBS |

Sales office

Production Plant

Warehouse

… as a result main revenue comes from Europe


70% 16% 14%


CBS |

Competition, limited capacity and decreasing growth in key

markets constitute challenges for Nord-Lock


Ch

alle

ng

es

Competition

Nord-Lock are facing both internal and external challenges

Capacity Slow Growth

70% utilization 2-3% in mature markets Growing rapidly

Revenue growth has decreased to 10% and limited options for expansion


CBS |

… but global opportunities and growth in Asia open up for

Nord-Lock to regain growth


Op

po

rtu

nit

ies

Low cost production

… but also several opportunities

Global Growth in Asia

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?


CBS |

Several options have been explored

7

HIG

H

LOW HIGH

Imp

act

Feasibility

LO

W

IMPACT

Feasibility

Size

Price Sensivity

Growth

Profitability

Organizational fit

Risk

Competition

EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY

New premium product

Low cost products

B2C segment

Market expansion

CBS |

… but based on feasibility and impact a market expansion is

found to be the best solution

8

HIG

H

LOW HIGH

Imp

act

Feasibility

LO

W

IMPACT

Feasibility

Size

Price Sensivity

Growth

Profitability

Organizational fit

Risk

Competition


New premium product

Low cost products

B2C segment

Market expansion

CBS |

Of the countries Nord-lock is active within the Asian

economies have most market potential and growth

9

HIG

H

LOW HIGH

MA

RK

ET

GR

OW

TH

MARKET POTENTIAL

LO

W

PRIORITIZE

MAINTAIN

MARKET POTENTIAL

Profitability

Organisational fit

Current market share

Market size


Scandi

EU rest

Korea

Japan

China

US/ Ca

DE

CBS |

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


CBS |

Of the countries Nord-lock is active within the Asian

economies have most market potential and growth

11

HIG

H

LOW HIGH

MA

RK

ET

GR

OW

TH

MARKET POTENTIAL

LO

W

PRIORITIZE

MAINTAIN

MARKET POTENTIAL

Profitability

Organisational fit

Current market share

Market size


Scandi

EU rest

Korea

Japan

China

US/ Ca

DE

CBS |

…and local competitors in Japan and South Korea do not

threaten Nord-Locks position in the market


Pri

ce

Safety

High Low

Lo

w

Hig

h

Premium Position

High Purchase Price

Long life cycle

Source: Market Line

CBS |

13

Expand Distribution in Japan

CBS |

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

CBS |

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

CBS |

16

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

CBS |

17

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

Low er prices


1

2

3

4

5

Advantages

Disadvantages

Similarity of

products

Warehouse

facilities

Non-core business

units

High P/E Financial impact

Company fit

Broad targets

Mature companies Large targets

Kobayashi Metals


CBS |

Kobayashi’s valuation is based on traded peers and previous

transactions in the industry


Comparable

peers

Previous

transactions

Kobayashi Metals

Value

EV/EBITDA

EV/EBIT

EV/EBITDA

Implied value 410 million SEK

Avg. Premium

Source: Thomsen Reuter, Bloomberg, Morningstar, Company websites

CBS |

19

Nord-lock must integrate Kobayashi with existing Japanese

offices to achieve synergies within revenue and cost


Kobayashi Metals

Current Nord-lock sales office Japan

Distribution Warehousing Sales

Secure revenue streams

Process optimization

Cost reduction

Restructure management

Integrate IT systems

Important synergies Key Decisions

CBS |

20

After acquiring Kobayashi Nord-lock should focus on 3 key

areas to ensure successful post-merger integration


Lock-in

Focus KPI

Employee

satisfaction

Supplier relations

Customer

attrition

Employee

turnover rate

Customer churn

rate

Long term

contracts

CBS |

21


CBS |

22 CBS |


Due to limited capacity expansion of production facilities is needed

23

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

CBS |

Source: Dezan Shira & Associates

24

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

CBS |


25

IP protection and control are main factors in favor of choosing

WFOE


Parameter WFOE JV Licensing

IP protection

Quality control

Control

CBS |

26

Nord-Lock should invest in production facilities in Mumbai


Highly educated and skilled labor force

Two major ports, extensive road network as well as railways

Leading research centers and institutions in energy and offshore

Fair average salary level

Kamathipura – bolt industry manufacturing area

GDP growth of 7.6% in 2015

1

2

3

4

5

6

CBS |


27

Setting up production facilities in Mumbai requires people,

sourcing and an assessment of capacity


Mumbai People Capacity Sourcing

CBS |

28

In order to set up facility in India people and strong

organizational structure is key


Research planning

Evaluation of research

Testing

5 people

Customer survey

Cost performance

Supplier performance

5 people

Machinery

Maintenance

Lean

7 people

Production

Equipment

Production planning

22 people

Statistical control

Failure testing

Quality management

5 people

1 executive 5 managers 44 employees

CBS |

Sourcing

29

By initiating production to India Nord-Lock can increase

capacity and utilize local sourcing


Capacity

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

India

Sweden

Transfer of volumes Local sourcing for production

CBS |

Production

Warehouse

Source: Company material, Latour

30


Initiate Production in India

CBS |

Entering into Korea and Japan will give Nord-lock a foothold

in Asia and an option to expand


Vis

ion

Time

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

CBS |

Nord-lock can increase revenue to 1.5 BSEK in 2019


Assumptions: 12% market share in both

Japan and Korea

Assumptions: 10% & 7% market share in

Korea and Japan, respectively

15% 5-7% 30%

Market

Share

Market

growth

EBIT

margin

Nord-lock can gain more than 300m SEK in

additional revenue in 2019

0

50

100

150

200

250

300

350

400

2016 2017 2018 2019

Worst

Base

Best

Worst

CBS |

This suggestion will give Nord-lock not only additional

revenue of up to 485m but sustainable growth markets


10% growth in status

quo growth

94m in profits in Japan

50m in profits in Korea

Nord-lock can create additional revenue of up to 485m in 2019

694

321

168

318

1501

0

200

400

600

800

1000

1200

1400

1600



mSE

K

Re

venue

CBS |

Expanding in Asia involves some important risk factors that

Nord-lock must address beforehand


Lik

lih

oo

d

Impact

C A

B

High Low

Lo

w

Hig

h Issue

Lack of skilled

labor in Mumbai

Inability to obtain

market share

Loss in home

markets

Mitigation

Implement

quality training

Focus on quality

and branding

Continuous

improvement of

qualty

A

B

C

Issues

CBS |

In order to succeed Nord-Lock must start immediately in

finding land and financial advisory

35

2016 2017 2018

PRODUCTION

FACILITY

ACQUISITION

Must win battles

Acquire distribution chain in

Japan by Q4 2016 1 2 3 Hire skilled labor and managers

for Indian facility by Q1 2018

Acquire land in Kamathipura

for production by Q3 2016

Hire financial advisor

Acquire Kobayashi Metals

Acquire land

Hire employees to manage and work at facility

Build production plant

Post-merger integration

EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY CBS |

Currently Nord-Lock has global presence but regional focus


Sales office

Production Plant

Warehouse

Source: Company Material, Company Website

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

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

Expand

Distribution in Japan

Initiate

Production in India 694

321

168

318

1501

0

200

400

600

800

1000

1200

1400

1600



mSE

K

Re

venue

CBS |

Questions and Answers Team Suader

Jarl Greve | Nadine Raida | Morten Juhl | Sebastian Kersting

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)

Key Markets

APPENDIX 41

47% 16% 12%

Germany USA Scandinavia

% of revenue

CBS |

Evaluation of Indian Cities

APPENDIX 42

Mumbai Delhi Bangalore Kolkata

Education

Infrastructure

Leading research

centers

Costs

Economic

Location

CBS |

Pros and cons of investment structures

APPENDIX 43

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

CBS |

Capacity Calculations

APPENDIX 44

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Sweden

Asia % 100% 100% 80% 30% 0% 0% 0% 0% 0% 0%

Europe and North America % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Asia 103 183 271 138 0 0 0 0 0 0

Europe and North America 694 763 839 923 1015 1066 1120 1176 1234 1296

Total 797 946 1110 1061 1015 1066 1120 1176 1234 1296

% 100% 100% 94% 77% 68% 65% 62% 58% 55% 52%

India

Asia % 0% 0% 20% 70% 100% 100% 100% 100% 100% 100%


Asia 0 0 68 321 485 582 699 839 1006 1208


Total 0 0 68 321 485 582 699 839 1006 1208

% 0% 0% 6% 23% 32% 35% 38% 42% 45% 48%

Total

Asia 103 183 338 459 485 582 699 839 1006 1208


Total 797 946 1178 1382 1501 1649 1818 2014 2241 2504

Asia % 13% 19% 29% 33% 32% 35% 38% 42% 45% 48%


Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

CBS |

Risk analysis

45

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 8 8 Focus on aligning interests and suggest raising debt to lower cost of capital

Loss of revenue in home markets

1 6 6 Maintain high level of product knowledge and differentiation and focus on developing client relationships

Resistance from domestic production facilities

3 1 3 Communicate the internationalization strategy to employees and understand key stakeholder motives

Appendix

Source: Team Sauder analysis

CBS |

Geographical assessment of potential expansion

APPENDIX 46

Country Market Value Share of overall

revenue Growth Market share Customer suitability

Germany 350 47% 7% 14% 2

US/Canada 122 16% 3% 3% 3

Den, Sve and Nor 58 8% 4% 29% 2

Japan 52 7% 5% 3% 3

Korea 51 7% 7% 6% 3

Finland 26 4% 4% 69% 3

Italy 15 2% 3% 4% 1

Spain 14 2% 2% 3% 0

France 14 2% 4% 6% 1

Benelux 14 2% 2% 7% 2

China 13 2% 9% 1% 0

UK 13 2% 3% 3% 1

CBS |

Distribution companies Japan

APPENDIX 47

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 Distribution Broad Only fastener product division - 20457

JTEKT Automotive Automotive/Machinery/bearings

Joint venture 3 543766

Source Company website, reports, morningstar and bloomberg

CBS |

Valuation of acquisition target

APPENDIX 48

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 6,3x 13,7x

Mean 5,0x 8,6x

Median 4,9x 8,0x

Min 4,0x 4,8x

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

CBS |

Cost and Capital for Investment

APPENDIX 49

Latour Holding

Debt 5195

Equity 16080

D/E 32%

Leverage ratio 24%

CBS |

-800

-700

-600

-500

-400

-300

-200

-100

0

2016 2017 2018 2019

Cost of investment 2016 2017 2018 2019

Acquisition 410 50

Production facility 300 200 100 50

Post merger integration 20 20

People 10 10 10

Total 710 260 130 80

Revenue Projections

APPENDIX 50

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 797 946 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 2017 2118

Market share 6/3% 10/5% 10/7% 12/10% 12/12%

Korea 51 91 98 125 134

Japan 52 91 134 202 254

CBS |

Sensitivity analysis

APPENDIX 51

Best case

mSEK 2015 2016 2017 2018 2019

Turnover 797 877 964 1061 1167



Post Turnover 797 946 1178 1382 1501


EBIT margin 30%


Korea 852 912 976 1044 1117

Japan 1742 1830 1921 2017 2118

Market share 6/3% 10/5% 15/10% 15/15% 15/15%

Korea 51 91 146 157 168

Japan 52 91 192 303 318

CBS |

Sensitivity analysis

APPENDIX 52

Worst

mSEK 2015 2016 2017 2018 2019

Turnover 797 877 964 1061 1167



Post Turnover 797 918 1052 1169 1275


EBIT margin 30%


Korea 852 912 976 1044 1117

Japan 1742 1830 1921 2017 2118

Market share 6/3% 7/5% 8/7% 10/7% 10/7%

Korea 51 64 78 104 112

Japan 52 91 134 141 148

CBS |

Documents

Taking the Next Step - CBSPros and cons of investment structures APPENDIX 43 Structure type Pros Cons Licensing • Cost effective route to getting a product to market • It is a