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transcript
Annual General Meeting
Legend Corporation
November 2006
Legend Corporation Overview
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
About Legend Corporation
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%
Financial Performance Overview
Results Analysis 2006
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
C A P I T A L S T R U C T U R E
Shares %
Mr B Dowe and family shareholding 49,632,002 46%
Shares held by institutions, public and senior management 58,821,862 54%
Total Issued Shares 108,453,864 100%
Share options on issue (various expiry & exercise) 599,999
Market Capitalisation current share price of $0.70 $75,917,705
F I N A N C I A L R A T I O S
Earnings per share for 2006 financial year $0.077 cps
Price earnings multiple on 2006 EPS 9.1 x
Dividend per share for 2006 financial year $0.030 cps
Dividend yield 4.3%
Dividend payout ratio 39.0%
All ratios based on Legend share price of $0.70 per share
Legend Corporation Snapshot
Share Price Performance Since Listing Capital Structure
Legend Corporation Snapshot
Historical Financial Performance
1999 2000 2001 2002 2003 2004 2005 * 2006 *
Gross profit margin 10.6% 10.8% 11.9%
EBIT margin 3.3% 3.5% 2.3% 4.0% 3.3% 3.1% 3.7% 4.8%
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
NPAT 2.6 4.0 6.7
Dividend $0.015 $0.030 $0.030
EPS $0.039 $0.058 $0.077
* reported results in accordance w ith AIFRS
2006FY Revenue by Geography
Australia40.0%
New Zealand6.1%
Hong Kong36.3%
Thailand3.7%
South Africa7.6%
Singapore6.2%
Taiw an0.2%
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
Additional Senior Management
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
IES specialises in thedesign and manufacture
of integrated circuits(IC)
IES and the client’sengineers design circuitry to
achieve better controlperformance
Final product manufacturedin China at a lower costwithout compromisingproduct performance
IES control IC’s are the key solution for awide range of home appliances
Hair styling devicePCB with componentsIC’s in enclosures
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
Competitive Advantages
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
0
4
8
12
16
2003 2004 2005 2006(F ) 2007(F )
Inm
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D ickso n
P hilips
I-A T C
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 FitOne Company, 3 brands
Wholesale and retail customer networks.
Sales offices in Sydney, Melbourne, Brisbane, Perth, Adelaide, Singapore, Hong Kong, Auckland, Johannesburg
Product development
& procurement
Memory Products
Third party electronics
Consumer Electronics
Electronics design & engineering
Manufacturing
Data products
Electrical products
Distribution Network
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
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
Overview of Legend
BrandedMemoryCards
Third PartyDistribution
1
2
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
4
5
6
Branded consumer products
7
8
9
Branded consumer products and storage devices
Memory modules and display adapters for computers
14 15
16
Branded consumer products and storage devices
Examples of Legend’s Product Range
103 11 12 13
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
Branded Consumer Products
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
Asian Sales Growth
Sales Revenue 2006
Asia46%
South Africa8%
Aust / NZ46%
Sales Revenue 2005
Asia34%
South Africa1%
Aust / NZ65%
Manufacturing Facilities
Established in Sept 2004 & has become regional HQ & hub
Modern production equipment, almost identical to Adelaide
Provides JIT manufacturing & delivery to sales offices
Low labour cost, high skills base, experienced staff
Next to Changi airport, excellent freight handling facilities
Singapore
Adelaide facility services Australian and NZ markets
Provides JIT manufacturing & delivery to local sales offices
Adelaide
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
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
Industry Outlook
Cabac - Electrical Distribution
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 Operations
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
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
Benefits of the Cabac Acquisition
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
Industry Overview
* Source: IBIS World Industry Report (9 November 2005)
Summary and 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
Outlook