Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Legend Corporation Annual General Meeting November 2006 Legend Corporation Overview About Legend Corporation Legend Corporation specialises in the manufacture, sales and distribution of electronic & electrical products Legend Corporation operates two brands: Legend Performance Technology focused on design, manufacture, sales & distribution of electronics components for ICT industry and Consumer Electronics for electronic retail market. Cabac sales and distribution of electrical products to electrical resellers and retail hardware stores Manufacturing facilities in Adelaide, Sydney and Singapore and utilise Chinese subcontracting manufacturers Legend acquired Cabac, an electrical wholesale distribution company, in July 2006 Well established distribution network Strong brand equity Sales offices throughout Australia and NZ, South Africa, Singapore, Hong Kong, South West China and into Europe Legend Corporation has a broad range of clients including: Acer, Sony, Xerox, NEC, DELL In Australia Legend supplies all major computer system integrators Major electrical distribution chains (Rexel, JR Turks, Ideal, P&R etc) In Australia Legend branded products are sold by major chains including: Harvey Norman, Kmart, Myer, Target & Dick Smith etc Financial Performance Overview Results Analysis 2006 2006FY 2005FY actual actual movement Revenue $m 201.5 177.7 13.4% EBITDA $m 10.70 7.30 46.6% EBIT $m 9.70 6.60 47.0% NPBT $m 8.11 5.84 38.9% NPAT $m 6.74 3.98 69.6% Earnings per share (cps) cps $0.077 $0.058 32.8% 2006 was a record year for Legend Gross margins improved from 10.8% to 11.9%, EBIT margin improved from 3.7% to 4.8% Key sales market highlights include: South African sales up from $1.3m in first partial year of full Legend ownership to $15.2m in 2006. Expect strong growth to continue Asian sales were $93m for 2006, up more than 46% on pcp Flash media and flash based product revenue increased from $18.4m in 2005 to $49.9m in 2006 First Quarter of 2007FY Sales of $53.9m and EBIT of $3.5m for the quarter (seasonally the slowest quarter) Positive operating cash flow of $1.2m (includes Cabac integration costs and higher interest expenses) Inventory levels reduced by $4.6m or 11% from 30 June 2006 levels (excluding Cabac inventory) Focus is on margin enhancement Legend Corporation Snapshot Share Price Performance Since Listing Capital Structure CAPITAL STRUCTURE Shares % Mr B Dowe and family shareholding 49,632,002 46% Shares held by institutions, public and senior management 58,821,862 54% 108,453,864 100% Total Issued Shares Share options on issue (various expiry & exercise) Market Capitalisation current share price of $0.70 599,999 $75,917,705 FINANCIAL RATIOS Earnings per share for 2006 financial year Price earnings multiple on 2006 EPS Dividend per share for 2006 financial year Dividend yield Dividend payout ratio All ratios based on Legend share price of $0.70 per share $0.077 cps 9.1 x $0.030 cps 4.3% 39.0% Legend Corporation Snapshot Historical Financial Performance 1999 2000 2001 2002 2003 2004 2005 * 2006 * actual actual actual actual actual actual actual actual Revenue 38.9 65.0 70.8 64.8 85.9 124.3 177.7 201.5 EBITDA 1.6 3.4 2.1 3.6 4.2 5.0 7.3 10.7 EBIT 1.3 2.3 1.6 2.6 2.8 3.8 6.6 9.7 2.6 4.0 6.7 Dividend $0.015 $0.030 $0.030 EPS $0.039 $0.058 $0.077 NPAT * reported results in accordance w ith AIFRS 1999 2000 2001 2002 2003 Gross profit margin EBIT margin 3.3% 3.5% 2.3% 2006FY Revenue by Geography South Africa 7.6% Thailand 3.7% Singapore 6.2% Taiw an 0.2% Australia 40.0% Hong Kong 36.3% New Zealand 6.1% 4.0% 3.3% 2004 2005 * 2006 * 10.6% 10.8% 11.9% 3.1% 3.7% 4.8% Additional Senior Management Matt Reardon Joins as CFO for Cabac but will add IES and Legend Operations in Australia and New Zealand. Shayne March Joins as Commercial Manager and will focus on management of all treasury and administration functions for all Legend Corp divisions in Australia and New Zealand. Joseph Rau Joins as Corporate Brand Manager Acquisition Overview – Integrated Electronics Solutions Integrated Electronic Solutions Integrated Electronics Solutions (“IES”) is an electronics engineering company IES was established following a management buy out of the Philips microelectronics operation in Adelaide IES achieved an EBIT of $5.8 million in the period closing 30 June 2006 Philips established the Adelaide operation in 1947 and commenced semiconductor fabrication in 1970’s Designs & manufactures integrated circuits (IC’s), thick film hybrid and printed circuit boards (PCB) module assemblies These products are typically electronic control circuits used to control functions in appliances and computing devices IES products are applied in a wide range of industries; medical, telecommunications, automotive, consumer electrical IES is a semiconductor company but does the manufacture of the silicon wafer is outsourced – however testing and quality control is conducted in-house (Adelaide) Complete Design Solutions IC’s in enclosures IES specialises in the design and manufacture of integrated circuits (IC) PCB with components IES and the client’s engineers design circuitry to achieve better control performance Hair styling device Final product manufactured in China at a lower cost without compromising product performance IES control IC’s are the key solution for a wide range of home appliances Competitive Advantages Two strategically positioned, modern production facilities in Adelaide and Singapore Just in time distribution model Sales offices in local markets Inventory Management System, price protected component products (DRAM, HDD, CPU & MB) Large client base and strong brand recognition Excellent relations with suppliers Just in Time Manufacturing and Hub Manufacturing Vertical Integration allows Legend to control all aspects of the product cycle Product quality Globally price competitive Very broad product range Benefits of the Acquisition IES significantly enhances Legend’s electronics engineering and design capability IES expertise can be utilised to deliver a larger range of products and services to Legend’s existing client base Legend’s existing infrastructure provides more opportunities for IES to increase its product range and services Cost savings and infrastructure consolidation Earnings accretive Cash flow positive Product and Customer Overview Work with manufacturers to design & deliver a solution which delivers productivity improvements & cost savings Key product lines are electronic control circuits used in: Bus buffers (essentially a signal amplifier) which are used in televisions, projectors, medical systems, computers Heat controllers for use in products such as hair dryers, hair straighteners Mains relay switching with contact protection Refrigeration thermostat control modules used in drink and beverage coolers Light emitting diode circuit drivers used in products such as hand held computing devices IES employs approximately 80 people with most employed in the engineering and production functions IES has a relatively concentrated customer base of less than 30 clients IES Semiconductor Export Volumes 16 In millions 12 8 D ic k s o n 4 P hilips 0 I- A T C 2003 2004 2005 2006(F ) 2007(F ) IES Competitive Advantages IES is a recognised specialist in low cost custom and generic IC’s for applications including: temperature control; mains power control; motor control; and LED drivers Design support for a client’s engineering function - works closely with the client’s engineers to design & manufacture a solution Globally price competitive Specialist electronics engineering capabilities (including integrated circuit design) Strategic Fit One Company, 3 brands Wholesale and retail customer networks. Sales offices in Sydney, Melbourne, Brisbane, Perth, Adelaide, Singapore, Hong Kong, Auckland, Johannesburg Electronics design & engineering Distribution Network Manufacturing Memory Products Third party electronics Consumer Electronics Electrical products Data products Product development & procurement Strategic Fit IES adds significant engineering and design capabilities to Legend IES brings engineering skills & IP that complement Legend’s traditional electronics operations & sales infrastructure Historically Legend has frequently outsourced product design and engineering or sourced OEM or licensed products Legend and IES have similar procurement requirements and common suppliers Opportunities for Growth of IES business Sell IES products & services through Legend’s distribution network with particular focus on Chinese manufacturing regions IES has focused on servicing a small, longstanding client base. Opportunity to target larger number of potential customers Roll out of systems using bus buffer (a form of signal amplifier) products for use telecommunications and computers Acquisition Summary Acquisition announced Tuesday 21st November 2006 Legend is acquiring all of the issued shares of IES Investments Pty Ltd The acquisition is priced on an EBIT multiple of 4.5 times an average of 3 years earnings including 2007 Consideration is in two parts: cash payment of $10m and issue of $13m of shares; and deferred cash payment for the balance based on achievement of 2007 EBIT forecast The key management/owners will be staying with the business The acquisition is earnings per share positive to Legend IES will contribute to Legend’s second half result Legend will fund the acquisition from a capital raising of in the order of $10 million and internal resources Industry Overview IBISWorld* estimated that sales revenue in 2005 for the Australian Electronic Equipment Manufacturing Industry was $2.1bn Most companies in this industry sector are small* The history of innovation in the industry explains the start-up of many small firms* Some companies are involved in design or research and development, whereas others may simply manufacture components, such as computer chips, under contract for others* IBISWorld notes that most electronic components are at the heart of many manufactured products. Basically, anything that's computerised or uses radio waves depends on electronic components for its operation Australia's electronics industry is an important contributor to the Australian economy in the sense that electronics is a key enabling technology that underpins growth and innovation in most industries* * Source: IBIS World Industry Report (31 May 2006) Legend Performance Technology - Digital Electronics Overview of Legend Legend specialises in the manufacture, sales and distribution of electronic & electrical products Just in time manufacturer of DRAM and Flash based memory products Legend’s product range supports more than 9,000 generic and specialised memory module specifications Manufacturing facilities in Adelaide and Singapore and utilises Chinese subcontracting manufacturers Well established distribution network Strong brand equity Sales offices throughout Australia and NZ, South Africa, Singapore, Hong Kong, Thailand, Taiwan and into Europe Legend Corporation has a broad range of clients including: Acer, Sony, Xerox, NEC, DELL In Australia Legend supplies all major computer system integrators In Australia Legend branded products are sold by major chains including: Harvey Norman, Kmart, Myer, Target & Dick Smith Examples of Legend’s Product Range Branded Memory Cards 1 Third Party Distribution Branded consumer products 4 7 9 8 2 5 3 Branded consumer products and storage devices 10 6 11 12 13 Memory modules and display adapters for computers 14 15 Branded consumer products and storage devices 16 1. Memory card (eg for digital camera) 2. Memory card with security 3. USB Thumb drives variants 4. Distributor of Hitachi hard disk drives 5. Distributor of AMD CPU’s 6. Distributor of motherboards 7. High definition set top box receiver 8. DVD TV player and recorder 9. Hitachi LCD Television 10. Tripod Speakers 11. Babyboom Boombox 12. Digital Camera 13. Photo frame 14. DRAM memory module for computer 15. Video card for computer 16. MP3 & MP4 player, camera, reader Branded Consumer Products Example of Taking a New Product to Market Legend released the JAZZ MP3 player in December 2005 It is positioned as a low cost, impulse purchase item It is a low cost product to manufacture and margins are good The product was designed by Legend and manufactured in a contract facility in China Jazz is a Data Appliance that levers sales of Legend flash media The user can purchase more memory cards to increase the number of songs that can be stored Sold through retail chains such as Harvey Norman, Dick Smith and K Mart New Products Pipeline Legend is constantly developing new data appliance consumer products Memory is the glue that binds these convergent technologies New products such as MP4 players and digital video recorders will require large amounts of memory Asian Sales Growth Asian computer components market is fragmented. Many suppliers in different segments. Quality varies Legend focuses on time to market, quality, after market support, product range and vertically integrated business model After extensive research and years of experience selling into the Hong Kong market from Australia, Legend opened its first Asian sales office in Hong Kong in January 2003. Hong Kong sales are now in excess of $70m (30 June 2006) Sales offices located in Hong Kong and Singapore International sales (outside Aust/NZ) have increased by 74% ($108.8m) of total revenue in 2006 Regional headquarters established in Singapore in 2005 Singapore production facilities fully operational as of September 2005 New offices will be selectively established in key markets in the Asian region Sales Revenue 2005 Sales Revenue 2006 Aust / NZ 65% Aust / NZ 46% Asia 46% Asia 34% South Africa 1% South Africa 8% Manufacturing Facilities Legend manufactures memory modules, flash cards and USB memory in two facilities Legend manufactures to provide just in time delivery to its key sales markets Manufacturing is an integral part of Legend’s vertical integration model and enables Legend to retain margin Singapore Adelaide Established in Sept 2004 & has become regional HQ & hub Adelaide facility services Australian and NZ markets Modern production equipment, almost identical to Adelaide Provides JIT manufacturing & delivery to local sales offices Provides JIT manufacturing & delivery to sales offices Low labour cost, high skills base, experienced staff Next to Changi airport, excellent freight handling facilities Industry Outlook Memory is integral to computers and other computer driven devices (digital cameras, mobile phones, PDA’s, MP3 players) Improving global economic growth is increasing demand for new PC’s Australia & NZ pick up for traditional PC related products unlikely until new Microsoft system released in early 2007 Strengthening Asian economies provide sales growth opportunities for Legend’s expanding Asian operations There is surging demand for ‘flash’ memory products (MP3 players, memory cards for digital camera’s, USB pens) According to leading independent research, the portable compressed audio (MP3) player market continues to surge, led by the portable flash player category which is expected to grow from 26.4 million units shipped worldwide in 2004 to nearly 124 million units in 2009 Continued product innovation and development creates new uses for memory products (eg. Digital video camcorders) New higher capacity PVR (Personal Video Recorder) New larger screen digital photo frames New larger capacity MP4 players Cabac - Electrical Distribution Overview of Cabac Operations Cable Accessories (Holdings) Pty Ltd (“Cabac”) was established in 1982 Cabac had sales of $56.4m & EBIT $5.5m as at 30 June 2006 and revenue of $46.2m & EBIT $3.8m in 2005 Legend acquired Cabac in July 2006 for $25m Integration of Cabac expected to be completed in February 2007 Cabac is an electrical sales and distribution company Cabac imports electrical and data products Cabac manufactures a range of electrical products in Sydney Customer base of electrical wholesalers, power companies, retail and hardware chains Cabac has expanded sales into the information technology industry Overview of Cabac Cabac’s product range includes: * We are working to introduce a number Copper lugs of new and unique products the CABAC Terminal connectors markets that apply to structured wiring Cable ties and lighting markets. Cable glands Heat shrink Meters and testing equipment PC accessories I.T. networking equipment (switches, routers) Data cables and structured wiring National distribution network, arrangements in place for Tasmania and New Zealand Benefits of the Cabac Acquisition Strategic and synergistic fit with Legend’s distribution network Legend products are being distributed through Cabac’s sales network and listed in Cabac’s catalogues Sell a broader range of product to a larger customer base EPS positive Positive impact on Legend’s operating margins Cash flow positive Opportunity for geographic growth of Cabac’s operations Opportunity to consolidate Perth, Sydney and Melbourne locations Opportunity for Cabac to utilise Legend’s resources in Brisbane and Adelaide Industry Overview The Electrical and Electronic Equipment Wholesaling industry had revenue of around $20 billion* in FY05 There are more than 3,500 participants in the industry, all but a tiny minority with revenue of less than $20m* A recent IBIS World Industry Report* listed the main barriers to entry into the industry as: Access to quality inventory Establishing sales and distribution network Establishing name in the market Cost of financing stock and debtor built-up Growth from strong demand from infrastructure and equipment investment and due to technological advances in electronics and telecommunications The declining importance of the manufacturing sector in Australia also means that an increasing share of domestic demand for goods is satisfied through imports, predominantly sourced through wholesalers * Source: IBIS World Industry Report (9 November 2005) Summary and Outlook Outlook The first quarter results show significant improvements in margins, positive cash flow and reduced inventory levels IES acquisition is cash flow and EPS positive and will improve operating margins Significant opportunity to cross sell IES products and services into Legend and Cabac customer base Cabac integration progressing well and expected to be completed by February 2007 Cabac’s financial performance has been in-line with expectations and consistent with historical rates of growth Opportunity for geographic growth of Cabac’s operations Australia & NZ pick up for traditional PC related products unlikely until new Microsoft system released in early 2007 Sales volumes for traditional PC related products and memory products in Asia and South Africa remain strong Continue to focus on margin enhancement and cash flow management Short term impact of expensing acquisition integration costs including alterations to Sydney warehouse facility. Effective company tax rate will increase with the Australian weighting of CABAC and IES earnings. Continue to review merger and acquisition opportunities that are aligned and add value to our strategy Targeting quality of earnings (double gross margin) rather than continued top line growth