Taking the next step.. - CBS · ”Taking the Next Step” will optimize three crucial parts of...
Transcript of Taking the next step.. - CBS · ”Taking the Next Step” will optimize three crucial parts of...
Copenhagen Business School Daniel Bech | Henriette Henriksen | Morten Siggaard | Silas Pedersen
A strategic proposal for NORD-LOCK for future growth
Taking the next step..
Excecutive Insights Solutions Impact
TODAY
+1 BEUR potential within the
bolt manufacturing industry,
where Nord-Lock is market
leader
However Nord Lock is facing
fierce competition, declining
growth rates and supply
chain issues
How can Nord Lock grow
revenues to 1BSEK by 2019
without eroding EBIT margin?
TOMORROW
”Taking the Next Step” will optimize three crucial parts of Nord-Lock’s value chain resulting in 1 BSEK in revenue
Distribution and Marketing
Improve sales channels in Germany, Korea and USA
After sales services
Increase satisfaction through services and proof
of originality
Production
Create a new and automated plant in Sweden
1 BSEK in revenue
37% EBIT Margin +40 Sales FTE's
Excecutive Insights Solutions Impact
The bolt securing industry has a huge potential of 1.3B EUR spanning across 10 complex industries
| 2
Sources: Company Material
Total available market within key industries (B EUR)
• Aviation
• Transport
• Offshore
• Energy
• Mining/Quarry
• Industrial equipment
• Automotive
• Consumer goods
• Agriculture
• Construction
10 Key Industries
1.3 B EUR
Excecutive Insights Solutions Impact
...and within this space Nord-Lock has positioned itself with premium products, leading to high historical sales growth
| 3
Sources: Company Material
Daniel laver
400
350
275
235
193
0
100
200
300
400
2011
+20,0%
2012 2015 2013 2014
MSEK
Positioning Map
High
Price
Low Safety Low
Low
NORD-LOCK
The Locking
Company
Fixtite
Titelock Ltd
Fast-lock Gmbh
South-lock Inc.
High
Excecutive Insights Solutions Impact
However, the company's sales growth is expected to slow down due to external factors challenging the business
| 4
Expected sales growth is projected to slow down to 10%
Sources: Company Material
...due to 3 key changes in the market
1 Home markets are stagnating
and small in size
2 Competitors are growing their business
rapidly
3 Emerging technologies are changing
the way manufacturing works 0
200
400
600
800
2020 2018
Years
2011
Sales MSEK
2012 2013
+10%
2015 2019 2017 2014
+20%
2016
Excecutive Insights Solutions Impact | 5
How can Nord-lock grow
revenues to 1B SEK by 2019,
without eroding the current
EBIT-margin?
Excecutive Insights Solutions Impact
To grow revenue several options have been assesed and market penetration proves to be the best option
| 6
Sources: Company Material
Options NI fit Cost Impact Risk
Product
development
Increase pricing
Acquisitions
Market penetration
Full Empty
Excecutive Insights Solutions Impact
Examing the industries, Offshore, Transport and Energy have the most promising outlook for Nord-Lock
| 7
Sources: Company Materials, Euromonitor, Statista
Hig
h
Low High
Bubble size = segment size
Ab
ility
to
co
mp
ete
Market potential
Construction
Agriculture
Consumer goods Automotive
Industrial equipment
Mining/Quarry
Energy
Offshore Transport
Aviation
Lo
w
MARKET POTENTIAL
Size
Growth
ABILITY TO COMPETE
Price Sensitivity
Ability-to-deliver
Where should Nord-lock focus?
Excecutive Insights Solutions Impact | 8
US & Canada Germany
UK
Swe, Den & Nor
China
France
Korea Japan
Finland
Spain
Italy
Benelux
PROPOSED FOCUS PROPOSED FOCUS PROPOSED FOCUS
Hig
h
Low High
Bubble size = market size
Ind
ustr
y p
revale
nce
Market attractiveness
…being more granular and mapping both industries and markets,
Korea, Germany and USA appears to be the most lucrative L
ow
Sources: Company Materials, Euromonitor
Where should Nord-lock focus?
FOCUS OF TODAY
NEXT STEP
Excecutive Insights Solutions Impact
Looking at the three markets, different buying criteria display the need to have different levers to penetrate successfully
| 9
USA Focus on superiority and safety of
product by promotion initiatives
MAIN BUYING CRITERIA COUNTRY CURRENT MARKET-SHARE HOW TO PENETRATE
GERMANY
Focus on creating awareness and
information about the high safety of Nord-locks products.
KOREA Being able to deliver more than just
the manufacturing part of the bolting solution
3%
14%
6%
SAFETY
QUALITY
ONE SUPPLIER
SOLUTION
Sources: Company Material
Excecutive Insights Solutions Impact
...but Nord-lock experiences several internal pain points throughout the value chain which must be resolved in order to succeed
| 10
Sources: Company Material, Corporate Website
LOGISTICS PRODUCTION DISTRIBUTION MARKETING & SALES SERVICE
Company performance along value chain Lo
w
Hig
h
”Warehousing costs
are increasing” ”The company does not currently fulfill the
product requirements for the customers ”
”It is of our belief that the main distribution
channel does not generate new sales”
Excecutive Insights Solutions Impact | 11
How can Nord-Lock optimize their
value chain in order to further expand
in Germany, Korea and USA?
Excecutive Insights Solutions Impact
”Taking the next step” will optimize three parts of Nord-Lock’s value chain; production, distribution and after sales services
| 12
STRENGTHEN THE CORE IMPROVE REVENUE STREAMS
Distribution and Marketing
Set-up stronger distribution in Germany, Korea and USA
After sales services
Increase satisfaction through services and proof of originality
Production
Create a new and automated plant in Sweden
Excecutive Insights Solutions Impact
Nord-Lock should leverage production automation technology and build a new production plant in Sweden
| 13
STRENGTHEN THE CORE IMPROVE REVENUE STREAMS
Distribution and Marketing
Set-up stronger distribution in Germany, Korea and USA
After sales services
Increase satisfaction through services and proof of originality
Production
Create a new and automated plant in Sweden
• 40 less FTE’s
• 120% increase in capacity • 300M SEK in initial investment
Excecutive Insights Solutions Impact
Best practice within production automation shows that it is more financially sustainable to manufacture at home
| 14
Cognex.com, case study, company material
Forecasted cashflow effects (MSEK)
0 0 0
2016 2017 2018 2019 2020 2021
300
Automatisation
India
East Europe
- 200
-300
- 100
100
200
- 50
Case Study - Cognex
Results:
• 75% labor savings
• 5000 repair jobs eliminated in 6 months
• 25% lower maintenance costs
• Increased flexibility and lower machine downtime
“By using automated production technology
we managed to reduce bottlenecks,
increase accuracy and also limit up front
capital expenses thus bringing tangible
cost savings in very short time”
Case Study - Cognex
Excecutive Insights Solutions Impact
... and furthermore several important strategic reasons exist for keeping production in Sweden
| 15
Nord-Lock should leverage production automisation and build new facility in Sweden
The Telegraph
1
2
3
4
More certainty on delivery time
Improve quality of inputs
Minimize supply chain risks
Improve customer collaboration
Excecutive Insights Solutions Impact
Nord-Lock needs to set-up a new and stronger distribution chain structure in Germany, Korea and USA
| 16
STRENGTHEN THE CORE IMPROVE REVENUE STREAMS
Distribution and Marketing
Set-up stronger distribution in Germany, Korea and USA
After sales services
Increase satisfaction through services and proof of originality
Production
Create a new and automated plant in Sweden
• 40 new FTE’s
• 14 M SEK in annual salary • 220 M EUR revenue increase
by 2019
Excecutive Insights Solutions Impact
The core focus should be on energy, transportation and offshore in Germany, Korea and USA, thereby increasing sales and marketing efforts
| 17
Source:Company material, company website
Germany Korea USA
Expansion
End Customers
Marketing
FTE’s
New sales offices New sales offices Partner with
distributor
OEM’s OEM & Local
distributors OEM’s
Conferences and
content marketing
Relationship
marketing
Conferences and
content marketing
Industries Energy &
transportation
Offshore &
transportation Offshore, transpor-
tation & energy
10 10 20
1 Nord-Lock has acquired
1 distributor in Germany
2 Acquisition of Superbolt inc
in USA in 2011
3 Nord-Lock has acquired main
distributor in South Korea
Excecutive Insights Solutions Impact
For the market expansion to be succesful Nord-Lock needs to change their current distribution structure
| 18
Current distribution structure
Sources: Company Material
Independent distributors
generate 59% of sales, but ...
”The general assesment by NL is
that the independent distributors
create no new business” and
... profit margins are lower when
selling through independent
distributors
NL
pro
du
cti
on
En
d C
on
stu
me
rs
Directly to customers: 1% of sales
Own sales offices:
42% of sales
Independent
representation
offices: 57% of sales
Independent
distributors: 59% of
sales
Excecutive Insights Solutions Impact
... so Nord-Lock should open new sales offices and partner up with distributors which will increase sales
| 19
Sources: Company Material
80% of new buisness comes
from own sales offices and
independent representation
offices
Direct sales build a stronger
relationship with the OEM and
local distributors
The new distribution chain
structure will generate higher
profit margins for NL
Own sales offices:
42% of sales
Independent repres-
entation offices:
57% of sales
NL
pro
du
cti
on
En
d C
on
stu
me
rs
Directly to customers: 1% of sales
Own sales offices:
60% of sales
Independent
representation
offices: 40% of sales
Independent distribu-
tors: 20% of sales
New distribution structure in Germany, Korea and USA
Excecutive Insights Solutions Impact
Nord-Lock should leverage existing customer base and production employees to offer after sales services
| 20
STRENGTHEN THE CORE IMPROVE REVENUE STREAMS
Distribution and Marketing
Set-up stronger distribution in Germany, Korea and USA
After sales services
Increase satisfaction through services and proof of originality
Production
Create a new and automated plant in Sweden
• 40 reorganized FTE’s
• 32,5 % ARPU increase • 200 M SEK revenue increase by
2019
Excecutive Insights Solutions Impact
To fulfill the needs of the customer base, Nord-Lock needs to build on its current offerings
| 21
Sources: Company Material
High
Valu
e a
dd
Complexity High
Low
Proof of originality
Corrosion preventives
Wedge lock systems
Seals
Lubrication systems
Service agreements
Potential product improvements
Low
Non-vibration systems
Nord-Lock can add value by delivering
service agreements and warranty offerings
The new services fit well with the
targeted industries and countries
It will increase ARPU and decrease
customer churn
1
2
3
Excecutive Insights Solutions Impact
Decrease by 40 employes 113 employees Increase by 40 employes
A transition of employees from production to service will minimize human and financial costs
| 22
Production Sales Service
Training "From Production to Service":
Duration: 3 months
Specialization: Offshore, Transportation, Energy Cost: 2 million
Certificate: ABS certificates within Offshore & Gas
Excecutive Insights Solutions Impact
"Taking the next step" will be implemented gradually over the coming four years
| 23
Q1 2016 Q2 2016 Q3 2016 Q4 2016 2017 2019
2018
Negotiate deal with Cognex
Automation
Find and build new facility
PRODUCTION
Implement automisation in existing and new facility
DISTRIBUTION
& MARKETING
Find location for sales offices in
Korea & Germany
Negotiate partnership agreement
with Vertex Distribution in the US
Hire sales representatives and sell
AFTERSALE &
SERVICE
Train production
employees
Analyse possible after sale customers
Provide aftersale solutions to energy, transportation and offshore clients
2019
Excecutive Insights Solutions Impact
... but three main KPI's must be met in order to secure success.
| 24
2019
Idea Competitions
Intrapraneurs Training Program
Idea Competitions
Idea Competitions
Intrapraneurs Training Program
Idea Competitions
Idea Competitions
Intrapraneurs Training Program
Idea Competitions
Succesfully automate
production facilities 1
Increase amount of
distribution from own
sales office 2
Increase revenue
by offering service
agreements 3
3.000
1.000
2.000
4.000
0
5.000
2015
5.000
3.000
4.000
1.000
0
2.000
3.000
5.000
4.000
0
2.000
1.000
2019 Units produced per production FTE
0
5
10
15
20
25
30
35
40
2015
0
5
10
15
20
25
30
35
40
2.500
2.000
3.000
1.000
1.500
500
0
2019 % of distribution handled by own sales office
3.000
4.000
5.000
2.000
0
1.000
2015
2.000
0
4.000
0
2.000
4.000
6.000 6.000
2019 Average revenue per customer
Q1 2016 Q2 2016 Q3 2016 Q4 2016 2017 2018 2019
Excecutive Insights Solutions Impact
Identifying failing distribution in US, missing automisation provider and employee resistance as key risks
| 25
Risk Assesment
C
A
B
Employee resistance
Cognex delivery
failure (SE)
Hig
h
High Low
Lo
w
Lik
lih
oo
d
Impact
D
F E
Failing distribution
agreement (US)
Excecutive Insights Solutions Impact
... but these risks can be mitigated through new partnerships, supplier and enforcing change management
| 26
Risk Assesment
C
A
B
Hig
h
High Low
Lo
w
Lik
lih
oo
d
Impact
D
E
A Partnering up with Pacific Coast Bolt Corporation in
the US
B
C Change management focusing on the need for
change within the bolt manufacturing industry
Mitigation Actions
Using new supplier Bolt Automation, another key
player within automation
Employee resistance
Cognex delivery
failure (SE)
Failing distribution
agreement (US)
F
Excecutive Insights Solutions Impact
…The initiatives will generate 420 MSEK in revenue and increase the revenue base by 71%
| 27
Sources: Company Material (Base revenue), Team analysis Assumptions: Sales per sales employee will remain constant.
The strategy will increase revenue by 420 MSEK … Accelerating the revenue growth by 6 ppt.
400350275235
532484440
193
586
420
320
212
100
0
100
200
300
400
500
600
700
800
900
1.000
1.100
193
2017F 2016F
540
+20,0%
2015
400
2014
696
+25,9%
2019F
1.006
2018F
852
275
2013
235
2012
350
2011
INCREMENTAL REVENUE - MSEK
420
320
212
100
0
50
100
150
200
250
300
350
400
450
2016F 2019F 2018F 2017F
TOTAL REVENUE - MSEK
Excecutive Insights Solutions Impact
The associated investments will require 300 MSEK in CAPEX and 20 MSEK in OPEX
| 28
Sources: Cognex sales material, Glassdoor, Instantoffice.com
PRODUCTION FACILITIES
~300 MSEK
300
MSEK
Increase current production facilities to increase capacity and automate production
EXPLANATION COSTS AMOUNT TYPE OF COST
ONE-TIME
CAPEX
NEW SALES FTEs
~14 MSEK 35 new FTEs in targeted markets focusing on selected industries to improve sales efforts
TRAINING OF REORGANIZED
FTEs
~2 MSEK 3-month training course for production FTEs in order to improve their service capabilities
ONE-TIME
OPEX
RECURRING
OPEX
20
MSEK
RENT OF NEW SALES OFFICES
~4 MSEK Need for new office space to house the new sales FTEs
RECCURING
OPEX
CAPEX
OPEX
Excecutive Insights Solutions Impact | 29
Sources: Company annual report (EBIT-margin, Gross profit-margin, Cash at hand), Nordea
TOTAL EBIT AND MARGIN – MSEK1
Nord-Lock should finance the strategy with a 50/50 cash & debt split …with increasing margins
117 139
220
299
375
0
10
20
30
40
0
100
200
300
400
500
2018
35%
2017
32%
2016
26%
2015
29%
2019
37%
"Taking the next step" is financed with cash and long-term debt, resulting in 375 MSEK in EBIT and a 37% EBIT-margin in 2019
428 MSEK
Cash Nord-Lock has available
at the end of 2014
~2%
Corporate swedish bond rate resulting
in 6 MSEK annual interest expences
Excecutive Insights Solutions Impact
Looking ahead to 2019
| 30
Distribution and Marketing
Set-up stronger distribution in Germany, Korea and USA
After sales services
Increase satisfaction through services and proof of originality
Production
Create a new and automated plant in Sweden
1 BSEK in revenue
37% EBIT Margin +40 Sales FTE's
You Ask
We Answer
Excecutive Insights Solutions Impact
Appendices
| 32
1. Executive summary
2. Situation
3. Nord-Locks positioning
4. External Complications
5. Overall question
6. Options assesment
7. Segment analysis
8. Country analysis
9. USA, Germany, Korea buying criteria
10. Value chain pain points
11. Question slide
12. Strategy overview
13. Production strategy
14. Production case study
15. Sweden production arguments
16. Distribution and Marketing strategy
17. Country specifics
18. Current distribution structure
19. New distribution structure
20. After sales services strategy
21. Service focus areas
22. Employee transition
23. Implementation plan
24. KPI measurements
25. Risk Assesment
26. Risk mitigation
26. Revenue impact
28. Cost implications
29. Financing
30. Looking ahead to 2019
31. Q&A
32. Appendices
33. Options assessment
34. Mapping of industries
35. Mapping of countries
36. Mapping of countries excel output
37. Market expansion Germany
38. Market expansion Korea
39. Market expansion USA
40. Why focus on Korea and US?
41. Why focus on distribution, sales and after sales services?
42. Why not B-2-C?
43. Why not 3D Printing?
44. P&L
45. Revenue increase & market share gain
Presentation Back-up slides
Options assessment
Options Top management
thoughts Capabilities
Nord-Lock fit
(average thoughts
and capabilities)
Cost Impact Risk
Market penetration 10 8 9 5 9 8
Product development 10 4 7 2 3 5
Increase pricing 6 7 6,5 8 2 3
Acquisitions 4 7 5,5 4 6 3
Excecutive Insights Solutions Impact
Mapping of industries
| 34
Delivery
requirements
Price
sensitivty Average Growth Size
Size
ranking Average
Aviation 25 75 50 40 100 80 60
Transport 75 75 75 70 70 100 85
Offshore 75 75 75 80 110 80 80
Energy 75 75 75 60 130 90 75
Mining/Quarry 75 50 62,5 40 60 50 45
Industrial
equipment 75 25 50 40 50 40 40
Automotive 25 25 25 50 70 60 55
Consumer goods 50 25 37,5 60 40 30 45
Agriculture 50 50 50 20 75 65 42,5
Construction 75 50 62,5 40 100 80 60
Excecutive Insights Solutions Impact
Mapping of countries
| 35
Market attractiveness
Ind
ustr
y p
reva
lence
H
igh
Lo
w
Low High
Where should Nord-Lock focus?
MARKET SHARE IN CHOSEN COUNTRIES
% Market share
INDUSTRY PREVALENCE
0% ≥8% ]0.-2%[ [2-4%[ [4-8%[
INDUSTRY RATING
Based on matrix given in company material
- NL Customer Suitability Low High Medium
MARKET ATTRACTIVENESS
<10 10-25 25-100 100-200 200<
<2% [2-4%[ [4-6%[ [6-8%[ ≥8
MARKET SIZE
Size of the market in value
PRICE SENSITIVITY
Sensitivity of corporates to increases in price
GROWTH
Expected growth towards ‘20
High Low To some
degree
Excecutive Insights Solutions Impact
Mapping of countries excel output
| 36
Growth rate
*1000
Market size
(mEUR)
Price
sensitivity (rating 0-
100)
Weighted
average (0,75;0,15;0,1
)
Italy 30 39 40 32,35
Spain 20 25 40 22,75
Benelux 20 21 70 25,15
Korea 70 90 50 71
Swe, Den &
Nor 40 21 90 42,15
Finland 40 4 80 38,6
US & Canada 60 430 60 115,5
Japan 50 184 60 71,1
Germany 70 264 70 99,1
France 40 50 70 44,5
UK 30 45 80 37,25
China 90 142 20 90,8
Industry rating Market share Weighted
average (0,8;0,2)
Italy 70 10 58
Spain 37,5 20 34
Benelux 55,275 20 48,22
Korea 71,25 20 61
Swe, Den &
Nor 63,525 100 70,82
Finland 40,2 100 52,16
US & Canada 55 10 46
Japan 61,05 10 50,84
Germany 47,5 50 48
France 41,875 10 35,5
UK 58,75 10 49
China 44,55 0 35,64
Market attractiveness Industry prevalence
Market expansion Germany
Sales offices in heavily industrialized areas such as Ruhr
Ruhr
Focus on energy, offshore and
transportation
• InnoTrans, 20th – 23th September
2016, Berlin
• EWEA Annual Conference, 27th –
30th September 2016, Hamburg
• Energy Industry, 24th – 26th
January 2017, Hotel
InterContinental Berlin
Conferences
* Leverage new distributor
Market expansion Korea
Sales offices in Southeastern Maritime Industrial Region
Focus on clients within energy,
offshore and transportation
• Monthly dinners with key industry
experts and leaders
• Support local initiatives espeacilly
within clean teach
• Give free assesments on what
value Nord Lock can bring;
durability, quality and safety
Relationship marketing
* Leverage new distributor
Market expansion USA
Partnership with Vertex Distribution Content marketing
* Leverage Bolt Inc’s network
• 9 locations
• American based company
Excecutive Insights Solutions Impact
Why focus on Korea and US?
| 40
Korea (2015) UK (2015)
US (2011)
Excecutive Insights Solutions Impact
Why focus on distribution, sales and after sales services?
| 41
Why do upwards integration
Why not B-2-C?
Social media assesment: No real experience and brand equity within B-2-C marketing
Posts
Likes/followers
Life time
Content
30 49
436 88
45 weeks 38 weeks
Engagement rates
... And there will be other costs related to implementing a B-2-C business model
1 Increasing advertising costs
2 Transportation costs pr. order
will increase
3 Lacking distribution channel and web
shop will be expensive
Appendix: Why not 3D Printing?
44
P&L
Profit and loss - MSEK
Without strategy: 2015 2016 2017 2018 2019
Revenue 400,00 440,00 484,00 532,40 585,64
Gross profit 240,00 264,00 290,40 319,44 351,38
EBIT 116,80 128,48 141,33 155,46 171,01
EBIT-margin *Assuming constant 29% 29% 29% 29% 29%
Strategy 2015 2016 2017 2018 2019
Incremental revenue 0,00 100,27 211,51 319,59 420,41
Gross profit 0,00 60,16 126,90 191,75 252,25
SG&A 0,00 20,00 18,00 18,00 18,00
Deprecciation 0,00 30,00 30,00 30,00 30,00
Incremental EBIT 0,00 10,16 78,90 143,75 204,25
Combined: 2015 2016 2017 2018 2019
Revenue 400,00 540,27 695,51 851,99 1.006,05
Gross profit 240,00 324,16 417,30 511,19 603,63
EBIT 116,80 138,64 220,23 299,21 375,25
Margin 29% 26% 32% 35% 37%
Revenue increase & market share gain
Key levers 2015 2016 2017 2018 2019 Sources:
ARPU 100% 110% 120% 127,5% 132,5% Team
Sales FTEs 73 83 93 103 113 Company Linkedin
Sales per FTE 5,48 5,48 5,48 5,48 5,48 Calculation
Sales increase (Initative 2) 400,00 454,79 509,59 564,38 619,18
Sales by APRU Increase (Initiative 3) 0,00 45,48 101,92 155,21 201,23
Revenue generated 400,00 500,27 611,51 719,59 820,41
Incremental revenue 100,27 211,51 319,59 420,41
Split by country US Germany Korea
New sales employees 20 10 10
New sales 109,59 54,79 54,79
New sales incl. ARPU improvement 145,21 72,60 72,60
Market share gain: 3% 2% 7%
New market share 6% 16% 13%
47