Taking the next step.. - CBS · ”Taking the Next Step” will optimize three crucial parts of Nord-Lock’s value chain resulting in 1 BSEK in revenue Distribution and Marketing

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


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


...and within this space Nord-Lock has positioned itself with premium products, leading to high historical sales growth

| 3


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


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%


...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?


To grow revenue several options have been assesed and market penetration proves to be the best option

| 6


Options NI fit Cost Impact Risk

Product

development

Increase pricing

Acquisitions

Market penetration

Full Empty


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?


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


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



...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”


How can Nord-Lock optimize their

value chain in order to further expand

in Germany, Korea and USA?


”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


Set-up stronger distribution in Germany, Korea and USA


Increase satisfaction through services and proof of originality

Production



Nord-Lock should leverage production automation technology and build a new production plant in Sweden

| 13






Production


• 40 less FTE’s

• 120% increase in capacity • 300M SEK in initial investment


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


... 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


Nord-Lock needs to set-up a new and stronger distribution chain structure in Germany, Korea and USA

| 16






Production


• 40 new FTE’s

• 14 M SEK in annual salary • 220 M EUR revenue increase

by 2019


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


For the market expansion to be succesful Nord-Lock needs to change their current distribution structure

| 18

Current distribution structure


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


... so Nord-Lock should open new sales offices and partner up with distributors which will increase sales

| 19


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


Nord-Lock should leverage existing customer base and production employees to offer after sales services

| 20






Production


• 40 reorganized FTE’s

• 32,5 % ARPU increase • 200 M SEK revenue increase by

2019


To fulfill the needs of the customer base, Nord-Lock needs to build on its current offerings

| 21


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


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


"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


... but three main KPI's must be met in order to secure success.

| 24

2019

Idea Competitions

Intrapraneurs Training Program

Idea Competitions

Idea Competitions


Idea Competitions

Idea Competitions


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


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)


... 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


…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


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


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


Looking ahead to 2019

| 30





Production


1 BSEK in revenue

37% EBIT Margin +40 Sales FTE's

You Ask

We Answer


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


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


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


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


Why focus on Korea and US?

| 40

Korea (2015) UK (2015)

US (2011)


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

Facebook

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

Documents

Taking the next step.. - CBS · ”Taking the Next Step” will optimize three crucial parts of Nord-Lock’s value chain resulting in 1 BSEK in revenue Distribution and Marketing