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PKC Group OyjInvestor Presentation Q1/2011
May 2011
Harri SuutariPresident & CEO
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PKC Group
• PKC Group provides design and manufacturing services for wiring harnesses and electronics
• The Group’s products and services are delivered mainly to the automotive, telecommunications and electronics industries
• PKC Group employs 7,213 employees*) globally at the end of Q1/2011
• The Group’s net sales amounted to EUR 96.9 million in 1-3/2011
• PKC Group Oyj is listed in NASDAQ OMX Helsinki Ltd.
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*) rented employees included
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Outstanding Growth Track Record Through Focused Investments
1997 1998 2000 2002 2003 2004 2006 2007 2008 2009
Brazilian factory was openedAcquisition of electronics business
Acquisition of Estonian operations
Electronics business established as separate subgroup
Electronics operations started in China
Wiring Harnesses business established as separate subgroup
PK Cables listed in the Helsinki Stock Exchange
Acquisition of Russian operations
Acquisition of North American operations
Acquisition of Polish operationsin Starachowice
8.912.0
15.0 13.59.6
15.3
24.3 25.7
32.3 30.635.8
38.3
16.0
42.2
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Adj. EBITDA(1) EUR million Development Over Time
(1) Illustrated net of non-recurring items
2010 2011
Acquisition of SEGU operationsin Germany, Poland, Ukraine
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PKC Group’s Locations
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Green Valley, USAGreen Valley, USA
Nogales, MexicoNogales, Mexico
Kempele (HQ), FinlandKempele (HQ), Finland
Raahe, FinlandRaahe, Finland Kostomuksha, RussiaKostomuksha, Russia
Keila & Haapsalu, EstoniaKeila & Haapsalu, Estonia
Starachowice, PolandStarachowice, Poland
Suzhou, ChinaSuzhou, China
Wiring Harnesses
OfficeElectronics
Curitiba, BrazilCuritiba, Brazil
São Bento do Sul, BrazilSão Bento do Sul, Brazil
Sosnowiec, PolandSosnowiec, Poland
Mukachewo, UkraineMukachewo, Ukraine
Barchfeld, GermanyBarchfeld, Germany
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Acquisition of Segu Companies
• PKC Group announced on 28 February 2011 that it had signed an agreement for the purchase of shares in the Segu companies. The requirements of closing have been fulfilled and the closing became effective on April 30, 2011.
• The Segu companies in Germany, Poland and Ukraine manufacture and develop wiring harnesses for the automotive and construction equipment sectors.
• In 2010, the Segu companies generated consolidated net sales of EUR 37.9 million (EUR 26.5 million in 2009), EBITDA was EUR 3.8 million (EUR 3.0 million in 2009) and had 1,078 employees at the end of the year (876 at the end of 2009).
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Financial Items, Tax Items and EPSNet Sales and Operating Profit
1-3/2011 Highlights
Net sales amounted to EUR 96.9 million(60.8 million), up 59.3% compared to 1-3/10.
Depreciation amounted to EUR 2.8 million(2.8 million).
Consolidated comparable EBITDA before non-recurring items was 12.5 EUR million (6.2 million).
Operating profit totalled EUR 9.7 million(2.8 million), accounting for 10.0% (4.6%) of net sales. The result is burdened by non-recurring expenses of EUR 0.6 million on the comparison period.
Comparable operating profit without non-recurring expenses totalled EUR 9.7 million (3.5 million), accounting for 10.0% (5.7%) of net sales.
Financial items amounted to EUR -0.3 million (-2.5 million).
Financial items consist of EUR 0.5 million interest expenses, as well as exchange rate profit caused mainly by Group’s internal liabilities totalling EUR 0.2 million net.
Profit for the report period totalled EUR 7.6 million (0.2 million).
Earnings per share were EUR 0.38 (0.01).
Cash Flows, Gearing, ROI and Net Debt
Cash flows after investments were EUR 0.1million (-2.8 million).
Gearing was -3.8% (40.4%)
ROI 28.3% (17.4%)
Net debt were EUR -4.6 million (32.1 million).
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Key Figures, 1-3/11
-2.132.1-4.6Net debt (EUR million)
5,76538.04,4926,197No. of employees at closing 1)
-1.740.4-3.8Gearing, %
25.817.428.3ROI, %
1.093,700.00.010.38EPS, (EUR)
19,6832,986.22467,592Net result (EUR 1,000)
9.44.610.0% of net sales
29,689242.12,8279,670EBIT (EUR 1,000)
316,08159.360,83596,886Net sales (EUR 1,000)
1-12/10Change %1-3/101-3/11
1) Rented employees not included
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Cost Savings, 1-3/11
32.619,99326,505Operating expensesexcluding one time expenses
-600Non-recurring expenses
27.06,1257,780Other operating expenses
29.414,46818,725Staff expenses
59.360,83596,886Net sales
Change %1-3/101-3/11
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7,213 Employees in total incl. rented at the end of Q1
R&D PersonnelPersonnel excl. rented employees
Net Sales by Geographical Areas
Key Figures, 1-3/11
5,3115,625
4,077
5,7656,197
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2007 2008 2009 2010 Q1/11
+7.5%
284416
817
1,1431,251
1,6161,686
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
China Finland NorthAmerica
Russia Estonia Poland Brazil
10.8 15.6
29.3
54.84.9
6.4
11.9
15.8
3.9
4.3
0.0
20.0
40.0
60.0
80.0
100.0
120.0
1-3/2010 1-3/2011
Finland Other Europe North America South America Other countires
90101
114 110 110
0
20
40
60
80
100
120
2007 2008 2009 2010 Q1/11
EUR, million
at the end of report period
10
Adjusted Operating Profit
Adjusted EBITDA % and EBIT %
Net Sales
Earnings per Share (EPS)
Key Figures, 1-3/11
53.860.8
96.9
45.8
81.0
46.8
82.3
55.4
91.9
0
20
40
60
80
100
120
2009 2010 2011
Q1 Q2 Q3 Q4
MAN acquisition
0.4
3.4
9.7
-1.1
7.6
3.8
10.5
1.9
9.9
-2
0
2
4
6
8
10
12
2009 2010 2011
Q1 Q2 Q3 Q4
-0.20
0.01
0.38
-0.25
0.24
0.39
0.56
0.190.29
-0.30-0.20-0.100.000.100.200.300.400.500.600.70
2009 2010 2011
Q1 Q2 Q3 Q4
Illustrated net of non-recurring items, EUR million
Illustrated net of non-recurring items, %
EUR, million
EUR
0
2
4
6
8
10
12
14
16
18
97 99 01 03 05 07 09 Q1/11
EBITDA % Operating profit %
Seguacquisition
11
Cash Flows after investments
R&D Expenditures
Investments
Return on Investment ROI,%
Key Figures, 1-3/11
4.8
8.1
1.32.3
0
1
2
3
4
5
6
7
8
9
2009 2010 Q1/2010 Q1/2011
37.6
14.9
-2.8
0.1
-5
0
5
10
15
20
25
30
35
40
2009 2010 Q1/2010 Q1/2011
6.4
25.8
17.4
28.3
0
5
10
15
20
25
30
2009 2010 Q1/2010 Q1/2011
5.5 5.7
1.4 1.6
0
1
2
3
4
5
6
2009 2010 Q1/2010 Q1/2011
EUR, million EUR, million
% EUR, million
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Wiring Harnesses Business Segment
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Key Customer SegmentsCustomer SegmentsBusiness Description
• The wiring harnesses business segment develops and manufactures wiring harnesses for the commercial vehicle, telecommunication and electronics industries
• Service concept comprises cost-effective contract manufacturing and expert product development and design services. Provision of full supply chain management for customers with sourcing, procurement, manufacturing and sequence deliveries on global basis
• WH for Trucks & Buses
• Engine Harnesses
• WH for Recreational Products
• WH for Agricultural, Forestry and Construction Equipment
• Wiring of Electronics
14
Market Development of Wiring Harnesses Segment 1-3/2011
• Truck markets in Europe strengthened during the report period. The registrations of heavy-duty trucks increased in Europe (the EU countries, Switzerland and Norway) by 65% over the comparison period.
• Vehicle orders received by our customers exceeded the deliveries made during the report period by about 9%.
• In the first quarter, a total of almost 58,000 new heavy-duty trucks were registered, and sales for the whole year are forecast to increase to between 220,000 and 240,000 vehicles.
15
Market Development of Wiring Harnesses Segment 1-3/2011
• The Brazilian commercial vehicles market profited from the strong economic growth and the increased overall demand for capital goods.
• Vehicle orders received by our customers exceeded the deliveries made during the report period by about 20%.
• In addition, the Brazilian government continued its investment subsidy program, which also applies to trucks.
• In Brazil, the registrations of heavy-duty trucks increased by about a fifth over the previous year’s first quarter.
• The changes in emissions regulations scheduled to enter into force at the end of this year are expected to increase production towards the end of the year.
• In 2010, about 110,000 heavy-duty trucks were registered in Brazil. Industry expects registrations for the whole year to increase by about 10% over the previous year.
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Market Development of Wiring Harnesses Segment 1-3/2011
• Orders for heavy-duty trucks continued to be very strong in North America during the first quarter.
• The order book of manufacturers increased to 108,000 vehicles, which is 150% more than the same time a year ago, and it is estimated that whole-year sales will reach between 230,000 and 250,000 vehicles.
• PKC’s deliveries of wiring harnesses for recreational vehicles increased in the first quarter in North America by 38% over the corresponding period the previous year.
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Market Development of Wiring Harnesses Segment 1-3/2011
• The sales of agricultural tractors in Europe increased by 18% boosted by the price increase of food grain.
• A growth in demand for energy wood and an increased market price for pulp have also boosted demand for forestry equipment in Europe.
• Production volumes of these machines increased over the corresponding period the previous year.
• Although PKC Group does not have its own wiring harness production in Asia, growing export to Asia by our customers is supporting the growth of PKC’s production volumes.
• The natural catastrophe in Japan had no effect on PKC’s Wiring Harnesses business in the first quarter.
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Operating Profit
Wiring Harnesses 1-3/2011
Net Sales
Key Figures, Wiring Harnesses
• Net sales during the report period amounted to EUR 78.2 million (45.7 million) and was 70.9% more than in 1-3/10.
• The segment’s share of consolidated net sales was 80.7% (75.2%).
• Comparable EBITDA was EUR 12.2 million (4.8 million).
41.745.7
78.2
33.1
64.1
34.2
61.8
40.3
70.8
0
10
20
30
40
50
60
70
80
90
2009 2010 2011
Q1 Q2 Q3 Q4
MAN acquisition
-0.6
2.0
10.1
-6.3
7.0
2.0
6.8
1.0
8.7
-8-6-4-202468
1012
2009 2010 2011
Q1 Q2 Q3 Q4
EUR, million EUR, million
Seguacquisition
Wiring Harnesses 1-3/2011• Operating profit was EUR 10.1 million (2.0 million),
equivalent to 12.9% (4.4%) of the segment’s net sales. The result is burdened by non-recurring expenses of EUR 0.6 million on the comparison period.
• Operating profit before non-recurring items was EUR 10.1 million (2.6 million), equivalent to 12.9% (5.7%) of the segment’s net sales.
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Truck Deliveries and Order Intakes, Q1/2011Heavy Trucks Registration EU27 (incl. Bulgaria & Romania)
Truck Market is Recovering
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
MAN Group Volvo Group VW/Scania
29 172
17 562 16 823
31 234
17 354
21 244
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
Volvo Europe + Latin America Scania Global MAN (excluding Brazil)
Deliveries Order intake
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 2009 2010 2011
+7.1%
-1.2%
Total +9.9%
Source: MAN, Volvo, ScaniaSource: ACEA
Heavy Trucks Production, EU27+ EFTA
Trucks > 16t, unitsTrucks, units
Trucks >16t, units
Source: J.D. Power Automotive forecasting Q1/2011
Heavy Trucks Production by Marque, EU27+ EFTA
0
20 000
40 000
60 000
80 000
100 000
120 000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
MAN Volvo Scania
Trucks 16t, units
Source: J.D. Power Automotive forecasting Q1/2011
+26.3%
20
0
100
200
300
400
2008
2009
2010
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
0
50
100
150
200
2008
2009
2010
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
0
100
200
300
400
500
600
2008
2009
2010
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
Source: J.D. Power Automotive Forecasting, Q1 2011, Note: Europe comprised of EU27 + Efta
Forecasted Heavy Truck Production: EU27+ EFTA
Forecasted Heavy Truck Production: NAFTA
Forecasted Heavy Truck Production: Global
Forecasted Heavy Truck Production: South America
0
500
1 000
1 500
2 000
2 500
3 000
2008
2009
2010
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
Asia-Pacif ic Central/East Europe Western EuropeNorth America South America
Number of trucks (‘000) Number of trucks (‘000)
Number of trucks (‘000)Number of trucks (‘000)
CAGR 11-18
7.2%
Wiring Harnesses Market Estimates Show Clear Signs of Recovery
CAGR 11-18
2.7%CAGR 11-18
2.7%
CAGR 11-18
4.9%
21
Strong Wiring Harnesses Business Fundamentals
• Solid customer and industry experience
• Long-term customer relationships with major manufacturers in the field
• Volume of a large corporation combined with the small company’s flexibility
• Worldwide production network close to the customer
• Strong expertise in tailoring product variations with short delivery times
Forecasted Heavy Truck Production: Global
0
500
1 000
1 500
2 000
2 500
3 000
2008
2009
2010
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
Other NAFTA EU27 + Efta South America
Number of trucks (m)
CAGR 11-18CAGR 11-17
2.7%
7.2%
2.7%
4.6%
5.0%
Source: J.D. Power Automotive Forecasting, Q1 2011
We have:
63
817906
1,251
1,616 1,686
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Finland NorthAmerica
Russia Estonia Poland Brazil
99% of 6,339 personnel in low
cost locations
22
Electronics Business Segment
22
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• Electronics business segment provides contract design and manufacturing services for the telecommunication, commercial vehicle and electronics industries
• Services cover the entire product life cycle – high-quality, reliable and cost-efficient services tailored according to customer-specific requirements
Product Lifecycle ManagementOverview
Business Areas• Electronics Manufacturing Services, EMS
– Contract manufacturing including sourcing, prototyping, manufacturing, testing, logistics, after sales services
– Design made by customer
• Original Design Manufacturing, ODM
– Total solution including design, sourcing, prototyping, manufacturing, testing, logistics, after sales services
– Design made by PKC
Pre-study
Design
Prototypes
Manufacturing
Cost Reduction
Sourcing
Supply Chain Management & Logistics
After Sales
Idea
Development
Launch
After Sales Services
Manufacturing
Production ramp-down
One-Stop-Shop – Full Lifecycle Support
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Industrial SegmentsProducts
• Power supply units
• Electronics control units
• Electrical distribution units
• Testing equipment
• Electronics service devices
• Vehicle computers
• Security products
• Industrial electronics
• Telecommunication
• Vehicle electronics
• Energy
• Security
Full service –from design
to total solutions
Products and Industrial Segments
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Market Development of Electronics Segment During Q1/2011
• Deliveries by PKC’s Electronics business increased over the comparison period, but fell from the level of the previous quarter on account of the postponement of some customer projects.
• Due to the global growth of the electronics industry, there havestill been problems in the availability of electronics components.
• The natural catastrophe in Japan had no significant effect on PKC’s Electronics business in the first quarter.
26
Operating Profit
Electronics 1-3/2011
Net Sales
Key Figures, Electronics
• Net sales during the report period amounted to EUR 18.7 million (15.1 million) and was 23.9% more than in 1-3/10.
• The segment’s share of consolidated net sales was 19.3% (24.8%).
12.1
15.1
18.7
12.7
16.9
12.7
20.5
15.1
21.1
0
5
10
15
20
25
2009 2010 2011
Q1 Q2 Q3 Q4
0.7
1.3
0.40.7
1.1
1.5
3.3
1.72.0
0
0.5
1
1.5
2
2.5
3
3.5
2009 2010 2011Q1 Q2 Q3 Q4
EUR, millionEUR, million
Electronics 1-3/2011
• Comparable EBITDA was EUR 1.0 million (EUR 1.8 million).
• Operating profit was EUR 0.4 million (1.3 million), equivalent to 2.4% (8.6%) of the segment’s net sales.
27
Leading Nordic EMS and ODM Provider
• Long-term and successful key customer relationships
• Low-cost manufacturing in Russia and China
• World class R&D competence in Finland and China
• Unique footprint in the electronics and telecommunications industries through strong know-how
0
40
80
120
160
200
2008 2009 2010 2011 2012 2013 2014
EMS ODM
Total EMS and ODM Market: Global
US$bn
10-14 EMS CAGR
10-14 ODM CAGR
7.9%
9.2%
Source: IDC: Worldwide Electronics Manufacturing Services Industry Forecast, 2005-2014, April 2010
We have…
237
284
336
0
50
100
150
200
250
300
350
400
Russia China Finland
857 employees in total
Number of employees at the end of Q1/2011, rented employees included
28
-20
-10
0
10
2008 2009 2010 2011 2012 2013 2014
EMS ODM
0
40
80
120
160
200
2008 2009 2010 2011 2012 2013 2014
EMS ODMSource: IDC: Worldwide Electronics Manufacturing Services Industry Forecast, 2005-2014, April 2010
Total EMS and ODM Market: Global
Key Trends
Estimated Growth of EMS and ODM Market: Global
US$bn
• Economic recovery – world wide market situation is challenging
• Consolidation – benefit of scale (competitors, customers, suppliers)
• Electronics manufacturing and also design moving to low cost countries
• Global customers demand local services globally
10-14 EMS CAGR
10-14 ODM CAGR
• Larger entities – full service – one-stop-shop
• Outsourcing of manufacturing and R&D functions
• Green values – creates new business possibilities and rules
• Component related risks
7.9%
9.2%
Strong Future Growth Expected in the Overall Electronics Market…
%
29
0
500
1,000
1,500
2,000
2,500
3,000
2008 2009 2010 2011 2012 2013 2014
EMS ODM
Source: IDC: Worldwide Electronics Manufacturing Services Industry Forecast, 2005-2014, April 2010(1) Source: Frost & Sullivan 2009 & The Worldwide Market for Low Voltage Motor Drives – 2009 Edition from IMS Research
Automotive Electronics Market: Global
Telecommunications Electronics Market: GlobalAC Drives Market: Global(1)
US$m
US$m
0
5,000
10,000
15,000
2008 2009 2010 2011 2012 2013 2014
10-14 CAGR
10-14 EMS CAGR10-14 ODM CAGR
Industrial Electronics Market: GlobalUS$m
0
5,000
10,000
15,000
20,000
25,000
30,000
2008 2009 2010 2011 2012 2013 2014
EMS ODM
10-14 EMS CAGR
10-14 ODM CAGR
9.5%
6.7%12.2%9.9%
4.8%
… and Also in the Segments Where PKC is Active
30
Growth PathCompetitive Advantages
• Innovative and proactive product development operations in Finland and China
• Product life-cycle support – shortening time-to-market
• High-quality, experienced and flexible partner
• Low cost manufacturing in Russia and China
• Capability to serve global customers locally in Europe and Asia
• Long term customer relationship and strong understanding of the market
• Deepening customer co-operation
• Expanding business in China, Russia and India
• Expanding ODM businesses
• Utilizing global sourcing in China
• Expanding PKC’s niche business areas, e.g. in testing equipment and power supply sectors
• Expanding customer base – focus on industrial and commercial vehicle, energy and security electronics as well as “Green Business”
• Continuous development of competence (personnel training, adapting new technologies, utilizing co-operation networks)
Electronics Business is Well Positioned to Leverage Market Recovery
31
Outlook for the Future
• During the first quarter, the customers of PKC’s Wiring Harnesses business received significantly more new orders than the average level the previous year.
• We expect that net sales of the Wiring Harnesses business will grow in comparison with the previous year.
• During the first quarter, sales of customers of the Electronics business increased over the average level of the previous year.
• We expect that the net sales of the Electronics business will grow in comparison with the previous year.
32
Outlook for the Future
• PKC Group estimates that its net sales and comparable operating profit will increase in 2011 from the previous year’s level.
• In 2010, net sales amounted to EUR 316.1 million, and operating profit before non-recurring items was EUR 31.5 million.
33
Thank You!
www.pkcgroup.com
