Nice

Transcription

Nice

Nice
28 July 2006
Industrials
Price: € 6.3
Initiating Coverage
Outperform
Target price: € 6.6
26/7/06
2006E
2007E
EPS Adj. (€)
2004
0.25
0.32
DPS (€)
0.07
0.10
BVPS (€)
0.98
1.23
EV/Ebitda(x)
13.4
10.5
P/E adj (x)
25.1
19.8
Div.Yield(%)
1.1
1.5
FCF Yield(%)
2.5
3.5
6.60
6.40
6.20
2005
6.00
5.80
5.60
5.40
5.20
A
S
O
N
D
NICE
MILAN MIBTEL - PRICE INDEX
J
F
M
A
M
J
Source: Mediobanca Securities
J
Source: DATASTREAM
So far so good...
Well on track to meet the IPO targets
Market Data
Market Cap (€ m)
731
Shares Out. (m)
Main Shareholder (%)
116
Nice Group BV (65%)
Free Float (%)
35.0%
52 week range (€)
6.51-5.68
Rel Perf vs Mibtel (%)
-1m
3.1%
We entitled our report for the group’s listing “Let’s buy a sustainable track
record”. The Q1 ’06 results disclosed after the floatation (net sales up by 35.2%
and EBITDA margin up by 280 bps) coupled with Q2 expectations which should
confirm the same trend, proved the management ability to repeat the impressive
growth recorded in the past years (24% organic growth between ’03 and ’05).
As such, we feel increasingly confident that the Group will meet the IPO targets
(24% top line CAGR between ‘05 and ‘08 and 35/36% EBITDA margin by ‘08e).
n.m. Positive evolution of the working capital
-3m
-12m
21dd Avg. Vol. ('000)
Reuters/Bloomberg
n.m. The working capital on sales, our main concern considering the track record of
176 the last two years (from 15.5% in 2003 to 22.6% in 2005), should stabilise at
NICE.MI / NICE IM
22%. It would imply a free operating cash flow generation of some €18.1m and
€25.4m in 2006e and 2007e respectively, peaking at 38.5m in 2008e.
Outperform rating and € 6.6 price target
Key Financial Data - 2005 (€m)
Turnover
122
EBITDA
38
EBIT
36
Net Profit
21
Shareholders' Funds
50
Net Debt (-) Cash (+)
0.6
Gearing %
Andrea Scauri
+39 02 8829 496
mailto:[email protected]
0.0%
We are slightly increasing our ’06e EPS by 1% as result of a stronger top line
growth (+29.9% vs. +28.6%), partly offset by a higher tax-rate (39% vs.
38.5%). This will have a knock on effect on our 2007e forecasts. We initiate our
coverage with an outperform recommendation and € 6.6 price target based on a
DCF analysis (9% WACC and 2.5% perpetual growth rate). We highlight that
further upside might come from a leveraged balance sheet following an
acquisition, although the management clearly excluded potential targets in the
short term. Our target price would imply 11.0x and 20.7x ’07e EV/EBITDA and
’07e P/E respectively, not demanding multiples given that:
•
Somfy, the French competitor and the only listed real comparable, is
currently trading at 9.2x ’07 EV/EBITDA. A premium between 15% and
20% is justified by the large differences in terms of growth prospects
and profitability.
•
the 24.6% CAGR 06e-08e EPS implies a 0.7x PEG ratio.
Sales desk
+39 02 8829 643
Nice
Contents
Contents
2
Investment case
3
Valuation
5
Our forecasts: a sustainable track record
8
Q2 and H1 ’06 preview
10
2003-2005: a period of strong growth
13
Market overview: the untapped synergies
17
Nice - the keys to the equity story: design, innovation and outsourcing
23
Two integrated product lines with a strong international presence
29
Next step: further international expansion
33
THIS PUBLICATION IS ISSUED BY MEDIOBANCA. IT IS NOT INTENDED TO BE AN OFFER TO BUY OR SELL, OR A SOLICITATION OF AN OFFER TO BUY OR SELL, ANY SECURITIES. THE
INFORMATION CONTAINED HEREIN, INCLUDING ANY EXPRESSION OF OPINION, HAS BEEN OBTAINED FROM OR IS BASED UPON SOURCES BELIEVED TO BE RELIABLE BUT IS NOT
GUARANTEED AS TO ACCURACY OR COMPLETENESS ALTHOUGH MEDIOBANCA CONSIDERS IT TO BE FAIR AND NOT MISLEADING. THIS REPORT WAS PREPARED BY MEDIOBANCA BANCA DI CREDITO FINANZIARIO SPA IN COMPLIANCE WITH THE OBLIGATIONS PURSUANT TO THE REGULATIONS FOR MARKETS ORGANISED AND RUN BY BORSA ITALIANA SPA, IN
ITS ROLE AS SPECIALIST TO NICE SPA. MEDIOBANCA AND ITS AFFILIATED COMPANIES, OR INDIVIDUALS CONNECTED TO THEM ARE UNDER NO OBLIGATION TO DISCLOSE OR TAKE
ACCOUNT OF THIS DOCUMENT WHEN ADVISING OR DEALING WITH OR FOR THEIR CUSTOMERS. FOR FURTHER INFORMATION REGARDING QUARTERLY RATING STATISTICS AND
DESCRIPTIONS, CHINESE WALL MECHANISMS PUT IN PLACE BY MEDIOBANCA AND ANY OTHER DISCLAIMERS, PLEASE REFER TO THE MB SECURITIES SECTION OF THE MEDIOBANCA
WEBSITE AT WWW.MEDIOBANCA.IT. TO ACCESS PREVIOUS RESEARCH NOTES AND ESTABLISH TRENDS IN RATINGS ISSUED, PLEASE SEE THE RESTRICTED ACCESS PART OF THE MB
SECURITIES SECTION OF THE MEDIOBANCA WEBSITE AT WWW.MEDIOBANCA.IT.
28 July 2006 ●
2
Nice
Investment case
A growing world player in the Home Automation Systems market: The Nice Group is a
growing Italian manufacturer of 1) automation systems for gates, garage doors and barriers (the
“gate sector”) and 2) automation systems for awnings, rolling shutters an curtains (the “screen
sector”). If compared to its main competitors, which are mainly focused on their domestic
markets, the company has had a significant presence worldwide since its foundation in 1993,
increasing exports as a percentage of total turnover from 57% to the current 82%. Nice is now
present in Western Europe through nine subsidiaries, ranking 3rd with a 9% average market
share, Eastern Europe (two subsidiaries and 14% market share), the Middle East and Africa (2%
market share), China and the US through a subsidiary set up in 2002 and 2005 respectively.
The second main key feature of the Group lies in its focus on both the “gate” and “screen”
sectors following the integration of Motus, a domestic player in the production of screen
products, in 2000. The screen division accounted for around 31% of the Group’s 2005 net
turnover.
The company sells around 74% of its mono-brand products to distributors and installers of Home
Automation Systems, while manufacturers and wholesalers account for around 19%. Following
the launch of Mhouse brand-line in 2003, the Group is also present in the large-scale retail for
the Do-It-Yourself (DIY) market, mainly through distribution agreement with large-scale
distributors.
+24% organic growth in ’03-’05: Nice outperformed growth in both the “gate” and “screen”
sectors over the ’03-’05 period, posting impressive organic compound annual growth rates of
17.6% and 41.8% respectively (vs. 7.7% and 7.4% for the reference markets). Profitability grew
in line with the EBITDA CAGR of 26.4% over the same period, with the EBITDA margin coming
in at between 32% and 34%. The Group’s outperformance and profitability are due to the
business model based on:
Design, higher technology and outsourcing. Nice has a unique business model, whose
flexibility and efficiency set it apart from those of its main competitors. The company has a
strong commitment to design and technology, which it combines with full outsourcing. The
highest added value phases (Research & Development and quality control) are kept in-house,
while the low added value activities (production and assembling) are fully outsourced. Last but
not least, thanks to a catching design and ergonomics Nice products boast a distinctive brand
identity among installers and distributors, in an unbranded industry.
’05-’08e bottom line growth of 30%: We expect a top line CAGR of 22.1% over the period
2005-2008e and a increase in operating leverage, leading to a 25.4% EBITDA CAGR and a rise in
the EBITDA margin from 31.3% recorded in 2005 pro-forma to 34.0% in 2008e. We can
summarize the management’s approach to boosting growth and margins as follows:
Further international expansion: The key driver of the Group’s business plan are 1) a
stronger position on markets where the Group is already present and 2) further geographical
expansion. The management aims to penetrate regions showing high growth potentials in terms
of positive real estate trends and an increased need for security through a greater commercial
presence (opening of new subsidiaries in key markets such as North America and Eastern
Europe).
28 July 2006 ●
3
Nice
Further technological improvement: As mentioned above, Nice is seen as an innovator in a
market currently characterised by a modest level of technology, due to its strong commitment to
design and research & development. Nice’s presence in both the “gate” and “screen” sectors,
makes it ideally placed to exploit the untapped synergies in relation to the standardisation of
basic components and, overall, in terms of the introduction of common standards recognised by
all home automation producers, allowing all devices to interact. We refer to ZigBee Alliance
between the main chip producers (including Motorola, Honeywell, Samsung, Cisco Systems, STM
and others) to develop a common radio-standard.
Procurement in low cost countries: The development of relationships with third-party
manufacturers and components suppliers in low cost countries coupled with enhanced bargaining
power to suppliers should lead to a decrease in the average cost of goods sold per unit. The
integration of the gate and screen divisions’ sales forces should also play an important role in
increasing the Group’s profitability.
Cash flow generation: We expect significant free operating cash flow generation of some
€18.1m and €25.4m in 2006e and 2007e respectively, peaking at 38.5m in 2008e, assuming
capital expenditures €5m and €8m respectively. This increase over the two years is due to the
investment in the automation of the existing warehouse, which we quantify at €4m. Note that,
after a worsening in the working capital recorded in the last two years (from 15.5% in 2003 to
22.6% in 2005) due to inefficiencies related to the strong top line growth, we assume a working
capital on sales stabilising at 22% as result of better receivables and payables, thanks to
stronger purchasing power to suppliers.
Based on the above assumptions, we foresee a 2006e and 2007e year end net cash position of
some €54.6m and €72.6m respectively.
The main risks: low sales visibility, delays and a more competitive scenario: on
average and in line with the sectors’ features, the company has around fifteen days visibility on
sales. As such, there is little visibility on year-end turnover. In addition, any delay in the
introduction of a new product range coupled with any delay in the internationalization process
might also hamper growth.
We would also highlight a potential increase in competition. The main competitors might
replicate the Group’s business model and penetrate regions with high growth potentials.
We do not consider the imitation of product design and technology in low cost countries like
China to be a threat in the short and medium term, given that R&D and design activities are kept
in-house. In addition, the Group’s patents are relatively young.
28 July 2006 ●
4
Nice
Valuation
In order to value the Group, we have mainly focused on a three-stage-DCF analysis due to the
lack of real comparables.
In our three-stage DCF model we have assumed a WACC of 9%, based on the following
assumptions:
•
risk-free rate at 4.25% in line with the current 10Y bond yield;
•
beta at 1.2 (the level we tend to apply to small/mid caps in light of the modest liquidity
of those stocks);
•
cost of debt (gross) of 5%;
•
debt-to-total-capital employed of 0%, reflecting the un-levered balance sheet structure.
Nice: Average WACC
Free risk rate
Beta
Mkt risk premium
Cost of Equity
% Equity
Cost of Debt (gross)
Tax rate
Cost of Debt (net)
% Debt
WACC
4.25%
1.20
4.0%
9.05%
100.0%
5.0%
33.0%
3.35%
0.0%
9.0%
In our model, we have used 1) an explicit period until 2008; 2) a period from 2009 to 2010 in
which we forecast a 13% and 8% top line growth respectively; 3) a terminal value showing a
33% exit EBIT margin, a sustainable level in the medium-long term.
The tables below summarize our free cash flow projections and our DCF analysis:
Nice: Cash Flow Calculation
EBITA
Taxes
Tax-rate
NOPLAT
Depreciation & other provisions
Operating Cash Flow
Capex
Change in Net Working Capital
Free Operating Cash Flow
2006
47.7
-18.6
39.0%
29.1
2.9
32.3
-5.0
2007
59.2
-22.5
38.5%
36.7
3.5
40.4
-8.0
2008
70.9
-26.2
38.5%
44.6
4.2
47.9
-4.0
2009
82.7
-30.6
38.5%
52.1
4.8
48.7
-4.8
2010
89.3
-33.1
38.5%
56.3
5.2
48.7
-5.2
-8.8
18.1
-7.0
25.2
-6.9
38.0
-6.3
45.8
-2.4
53.9
28 July 2006 ●
5
Nice
Nice: DCF Valuation
2006
2007
2008
2009
2010
9.0%
1.00
18.1
18.1
9.0%
0.92
23.1
41.2
9.0%
0.84
32.0
73.2
9.0%
0.77
35.3
108.5
9.0%
0.71
38.1
146.6
WACC
Discount rate
Discounted Free Operating Cash Flow
Cumulated DFOCF
Nice: DCF Analysis
Perpetual Growth Rate
WACC
2.5%
9.0%
Terminal Value as of 31/12/10
Discount Rate of Terminal Value
Discounted Terminal Value
Cumulated DFOCF
822.5
0.71
581.6
146.6
Enterprise Value (€mn)
Net Cash (€m)
Minorities market value
728.2
34.8
0.0
Equity Value (€mn)
Value per share
763.0
6.58
We identify a Fair Value of € 6.6 that we set as price target. Below, a sensitivity analysis shows
the potential upside in case of a levered balance sheet and a consequent decrease in the WACC.
Nice: Sensitivity analysis
WACC
6.7
8.3%
8.6%
8.8%
1.0%
6.1
5.9
5.8
1.5%
6.4
6.2
6.1
terminal growth rate
2.0%
2.5%
3.0%
6.8
7.2
7.8
6.6
7.0
7.5
6.4
6.8
7.2
9.1%
5.6
5.9
6.2
6.6
9.3%
9.6%
5.5
5.4
5.8
5.6
6.1
5.9
6.4
6.2
9.8%
5.3
5.5
5.8
6.1
3.5%
8.4
8.1
7.8
4.0%
9.2
8.8
8.4
7.0
7.5
8.1
6.8
6.6
7.2
7.0
7.8
7.5
6.4
6.8
7.2
28 July 2006 ●
6
Nice
For the sake of completion we provide a peer comparison, even if we remind investors that Nice
Group is a unique equity story in terms of:
•
business model;
•
top line growth and profitability rates;
•
reference markets.
As such, we took into account the French Group Somfy, the only listed company partly involved
in the reference market of Nice, but with significant differences in terms of:
•
Market position: the French competitor is mainly involved in the production of screen
home automation systems;
•
Geographical presence: Somfy is leader in the
internationalisation process still in a start-up phase;
•
Growth expectations: 5% CAGR in ’05-‘08e vs. top line CAGR of 22.1% for the Nice Group
expected over the same period;
•
Profitability: a 24% consensus EBITDA margin in 2006e vs. an EBITDA margin of 32% for
Nice.
domestic
market,
with
the
Somfy is currently trading at around 9.8x and 9.2x ‘06e and ‘07e EV/EBITDA multiples
respectively.
For these reasons mentioned above and coherently with our approach assumed during the
Group’s valuation before the listing, Nice might justify a premium between 15% and 20% on
such multiples:
Nice: Multiple Comparison on Somfy ‘07e EV/EBITDA
EV
2007e
EV/Sales
2007e
EV/EBITDA
2007e
EV/EBIT
Somfy
2.2x
9.2x
11.0x
20% Premium
2.6x
11.0x
13.2x
2007e NICE EBITDA
Implied Group's Enterprise Value on '07
EV/EBITDA
692.0
07e Net debt (cash)
(72.6)
Equity Value
764.6
Value per share
62.7
6.59
28 July 2006 ●
7
Nice
Our forecasts: a sustainable track record
Looking at the Group’s profit and loss account, what strikes us most is the very high level of
profitability and low depreciation costs. This is the result of the Group’s unique business model
based on full outsourcing and a low level of capital expenditures. Considering Nice’s track record,
we believe that the company can well sustain an average 22.1% ’05-’08e top line CAGR and an
EBITDA ’05-’08e CAGR of 25.4%.
More specifically, top line growth should be faster abroad than on the domestic market, while we
expect operating leverage to come through essentially:
•
synergies to be exploited between the gate and screen divisions;
•
further delocalisation of acquisition of components and assembling in low cost
countries.
In particular for 2006, we expect Nice to deliver top line growth of almost 30% with total sales
of €158m and an increase in the EBITDA margin from 31.3% (2005 pro-forma) to 32%. This
trend should also be confirmed in 2007e and 2008e, with the Group posting EBITDA margins of
33% and 34% respectively.
Our 2006e-2008e forecasts by business division and geographical area are summarised below.
Nice: 2006e-2008e Gate and Screen Divisions Forecasts
2006e
% ch.
2007e
% ch.
2008e
% ch.
CAGR ’05-‘08e
101.1
20.5%
113.5
11.9%
122.8
8.2%
13.4%
56.0
51.2%
76.5
35.1%
98.4
28.6%
38.0%
Total Group’s revenues
158.0
29.9%
190.0
20.3%
221.2
16.4%
22.1%
Total revenues (gate)
Total revenues (screen)
28 July 2006 ●
8
Nice
Nice: 2006e – 2008e Forecasts by Geographic Area
Italy
% of sales
France
% of sales
EU 15
% of sales
Rest of Europe
% of sales
Total Europe
% of sales
America
% of sales
Africa & Middle East
% of sales
Asia - Oceania
% of sales
Total
2006e
% ch.
25.8
15.0%
16.4%
46.3
34.6%
40.0%
20.0%
29.3%
50.0%
56.3
30.1
172.6
4.1
7.9
158.0
% of sales
100.0%
24.2%
40.0%
5.4
29.9%
188.1
100.0%
8.0%
11.0%
72.3
25.0%
28.1%
64.4
14.4%
25.8%
10.0%
14.3%
16.1%
21.6%
25.0%
36.3%
14.0%
19.8%
22.0%
31.1%
16.4%
22.1%
29.1%
13.0%
33.1
15.0%
19.8%
200.5
90.6%
35.0%
5.2
2.3%
16.0%
4.1%
2.6%
30.7
% ch. CAGR ‘05/’08e
32.7%
2.2%
30.0%
4.3%
4.1
25.0%
90.8%
1.9%
6.8
57.8
2008e
13.9%
15.8%
91.2%
3.1
10.0%
29.6%
16.8%
144.0
28.4
30.4%
28.7%
26.6
% ch.
15.0%
29.3%
45.3
2007e
9.0
4.1%
32.0%
6.6
2.8%
3.0
20.3%
221.2
100.0%
We finally assume depreciation costs will rise by 13.5%, thus leading to a 2006e EBIT margin of
30.2% (+110 bps Y/Y on pro-forma data), or €47.7m in absolute terms.
Net profit for 2006e and 2008e should reflect the above mentioned operating leverage, the
decline in interest costs due to internal cash flow generation and tax charges. The tax-rate is
expected to be around 39.0% in 2006e from 40.3% in 2005 pro-forma, due to a different split of
pre-paid taxes and 38%/37% in the long term. As such, net profit should grow from the proforma €20.8m recorded in 2005 to €29.1m in 2006e, before climbing to some €45.2m in 2008e,
representing a nominal ’05-’08 CAGR of 29.6%.
28 July 2006 ●
9
Nice
Q2 and H1 ’06 preview
The fist quarter results of the 2006 disclosed after the Group’s floatation, coupled with forecasts
for the second quarter replying the same trend, should confirm our full-year assumptions.
Although the first half of the year shows a lower impact on the full-year figures due to
seasonality effects, we feel more confident on the management ability to reply the impressive
growth recorded in the past years (24% organic growth between ’03 and ’05).
We expect H1 ’06e net sales to be up by 31% and the EBITDA standing at € 23m (+36.1%),
with a margin of 32% (+90 bps Y/Y).
Nice: Q2 and H1 ’06 preview
1Q05a 2Q05a 1H05e 1Q06e
Total sales
22.8
32.2
55.0
Cost of good sold
(9.4)
(12.5)
(21.9)
Gross margin
% on sales
13.4
19.7
33.1
58.9%
61.1%
60.2%
EBITDA
EBITDA margin
(12.1)
11.3
17.1
35.2%
31.1%
28.2%
(0.7)
(0.6)
(0.7)
(1.3)
5.2
10.7
15.9
EBIT margin
22.8% 33.1%
28.8%
(16.0)
28.0%
25.2 28.0%
61.1%
8.7 50.1%
14.3 26.6%
13.6%
% ch.
72.0 31.0%
-28.1
28.4%
43.9 32.7%
61.0%
34.8%
23.0 34.5%
32.0%
(0.8)
8.0 54.3%
26.0%
% ch. 1H06e
41.2 28.0%
18.7 39.6%
5.8
EBIT
28.9%
60.8%
25.4%
D&A
% ch. 2Q06e
30.8 35.2%
15.0%
13.6 27.3%
32.9%
-1.5
14.4%
21.6 36.1%
30.0%
As for the cash generation, we expect some € 7.6m in the first semester assuming:
•
some € 2.5m capex (in line with the € 5m expected for the full year);
•
a net working capital on sales standing at 22.5%, implying some € -0.8m change
compared to the first quarter results. We expect a further improvement in the second
half of the year in both inventories and payables/receivables, thus leading to a 22% of
NWC on sales for the full year and some 18m free operating cash flow.
Nice: Free Operating Cash Flow assumptions
2005 PF
Q1 ‘06e
Q2 ‘06e
26.0
30.4
31.2
21.4%
23.5%
22.5%
22.5%
22.0%
∆ Working Capital
(4.4)
(0.8)
(5.2)
(8.8)
Capex
(1.5)
(1.0)
(2.5)
(5.0)
Total cash Out
(6.0)
(1.8)
(7.7)
(13.8)
5.8
9.5
15.4
32.0
(0.1)
7.8
7.6
18.2
Net Working Capital
Net Working Capital on sales (%)
Total Cash Generation
Free Operating Cash Flow
H1 ‘06e
2006e
31.2
34.8
28 July 2006 ●
10
Nice
Total sales
Components
Delta inventories
Delta work in process
Outsourcing
Cost of good sold
Gross margin
2003
79.4
(29.6)
0.7
1.6
(7.9)
(35.2)
44.2
2004
Italian GAAP
101.2
(35.3)
2.4
1.2
(8.6)
(40.3)
60.9
% on sales
55.7%
60.2%
(0.3)
(0.2)
(0.3)
(0.2)
(0.9)
(1.2)
(1.2)
(2.3)
(4.6)
(5.1)
0.5
(10.1)
34.1
43.0%
(8.6)
25.5
32.1%
(1.4)
(1.4)
(2.8)
0.0
22.7
28.6%
0.0
0.4
(1.1)
(0.7)
0.0
22.0
(6.8)
30.9%
0.0
15.2
+19.1%
(0.5)
(0.2)
(0.4)
(0.2)
(1.3)
(1.7)
(1.9)
(3.9)
(7.5)
(6.1)
0.4
(14.5)
46.4
45.8%
(11.0)
35.3
34.9%
(1.7)
(1.5)
(3.2)
0.0
32.1
31.7%
(0.3)
0.7
(1.0)
(0.3)
0.0
31.5
(10.8)
34.3%
0.0
20.7
+20.4%
External R&D
Energy
Maintenance
Other industrial costs
Industrial costs
Transportation costs
Advertising
Others
Commercial costs
G&A
Others
Total Industrial+commercial+G&A+others
Added value
% on sales
Labour costs
EBITDA
EBITDA margin
Tangible Depreciation
Intangible depreciation
Total depreciation
Other provisions
EBIT
EBIT margin
Write-offs
Financial income
Financial charges
Net financial income (charges)
Extraordinary items
Pre-tax profit
Taxes
Tax rate
Minorities
Net profit
Net margin
% ch.
+27.4%
+19.3%
n.m.
-22.4%
+9.7%
+14.5%
+37.7%
+92.2%
-14.9%
+54.9%
+20.7%
+41.4%
+43.8%
+61.3%
+71.7%
+61.9%
+21.1%
-20.4%
-14.4%
+35.9%
+28.4%
+38.4%
+19.6%
+7.3%
+13.4%
+41.5%
n.m.
+99.7%
-3.6%
-57.4%
+43.1%
+59.0%
+36.0%
2004
IFRS
101.1
(35.6)
2.4
1.6
(8.6)
(40.2)
60.9
2005
% ch.
121.6
(47.5)
0.9
7.8
(9.7)
(48.5)
73.1
+20.2%
+33.5%
n.m.
n.m.
+12.0%
+20.5%
+20.0%
60.2%
60.1%
(0.4)
(0.3)
(0.4)
(0.1)
(1.2)
(1.7)
(1.3)
(4.6)
(7.7)
(3.8)
(2.1)
(14.7)
46.2
45.7%
(11.1)
35.1
34.7%
(1.6)
(0.7)
(2.3)
0.0
32.8
32.4%
0.0
0.8
(1.0)
(0.2)
0.0
32.5
(12.9)
39.6%
0.0
19.7
+19.4%
(0.4)
(0.4)
(0.4)
(0.2)
(1.4)
(2.1)
(1.6)
(6.6)
(10.4)
(5.5)
(2.3)
(19.5)
53.6
44.1%
(14.6)
39.0
32.1%
(2.0)
(0.8)
(2.8)
0.0
36.2
29.8%
0.0
1.2
(1.3)
(0.1)
0.0
36.1
(14.5)
40.1%
0.0
21.7
+17.8%
-13.1%
+56.8%
-10.5%
+80.5%
+12.8%
+24.0%
+22.6%
+43.3%
+35.4%
+45.0%
+10.0%
+32.5%
+16.0%
+31.2%
+11.2%
+22.2%
+13.9%
+19.8%
+10.6%
+49.7%
+30.7%
-43.5%
+11.0%
+12.3%
+10.2%
2005
Pro-Forma
121.6
(47.5)
0.9
7.8
(9.7)
(48.5)
73.1
2006
% ch.
2007
% ch.
2008
% ch.
158.0
(59.6)
0.9
9.7
(11.9)
(60.8)
97.2
+29.9%
+25.7%
+10.0%
+25.0%
+23.0%
+25.5%
+32.9%
190.0
(70.9)
1.0
11.7
(14.0)
(72.1)
117.9
+20.3%
+18.8%
+10.0%
+20.0%
+17.7%
+18.5%
+21.3%
221.2
(80.5)
1.1
12.9
(15.3)
(81.8)
139.4
+16.4%
+13.5%
+10.0%
+10.0%
+9.5%
+13.4%
+18.3%
60.1%
61.5%
(0.4)
(0.4)
(0.4)
(0.2)
(1.4)
(2.1)
(1.6)
(6.6)
(10.4)
(6.5)
(2.3)
(20.5)
52.6
43.3%
(14.6)
38.0
31.3%
(1.7)
(0.8)
(2.5)
0.0
35.5
29.2%
0.0
n.a.
n.a.
(0.8)
0.0
34.7
(14.0)
40.3%
0.0
20.8
+17.1%
(0.4)
(0.5)
(0.4)
(0.2)
(1.6)
(2.8)
(2.1)
(9.3)
(14.2)
(9.1)
(3.0)
(27.8)
69.3
43.9%
(18.8)
50.5
32.0%
(2.0)
(0.9)
(2.9)
0.0
47.7
30.2%
0.0
1.6
(1.6)
0.0
0.0
47.7
(18.6)
39.0%
0.0
29.1
+18.4%
62.0%
+20.0%
+20.0%
+20.0%
+20.0%
+20.0%
+30.0%
+30.0%
+40.0%
+36.4%
+40.0%
+30.0%
+35.7%
+31.7%
+29.0%
+32.8%
+15.0%
+10.0%
+13.5%
+34.2%
-100.0%
+37.3%
+32.8%
+40.2%
(0.5)
(0.6)
(0.5)
(0.3)
(1.9)
(3.3)
(2.5)
(11.2)
(17.0)
(10.8)
(3.5)
(33.3)
84.6
44.5%
(21.9)
62.7
33.0%
(2.5)
(1.0)
(3.5)
0.0
59.2
31.2%
0.0
1.1
(0.7)
0.4
0.0
59.6
(22.6)
38.0%
0.0
37.0
+19.5%
63.0%
+19.0%
+19.0%
+19.0%
+19.0%
+19.0%
+20.0%
+20.0%
+20.0%
+20.0%
+19.0%
+19.0%
+19.5%
+22.1%
+16.4%
+24.2%
+25.0%
+20.0%
+23.5%
+24.2%
-31.3%
-56.3%
+0.0%
+25.1%
+21.8%
+27.1%
(0.6)
(0.7)
(0.6)
(0.3)
(2.2)
(3.8)
(2.9)
(12.8)
(19.5)
(12.4)
(4.0)
(38.3)
101.2
45.7%
(26.1)
75.1
34.0%
(3.0)
(1.2)
(4.2)
0.0
70.9
32.0%
0.0
1.1
(0.3)
0.8
0.0
71.7
(26.5)
37.0%
0.0
45.2
+20.4%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+15.0%
+19.5%
+19.0%
+19.7%
+20.0%
+20.0%
+20.0%
+19.7%
+0.0%
-60.0%
+0.0%
+20.3%
+17.1%
+22.1%
Source: Company Data and Mediobanca Securities
28 July 2006 ●
11
Nice
Capex and cash generation
We expect a 2006e and 2007e year end net cash position of some €54.6m and €72.6m
respectively. These figures include the proceeds from the capital increase following the Group’s
floatation and are based on the following assumptions:
•
Expected capital expenditure of €5m and 8m in 2006e and 2007e. This increase is due
to the investment in the new warehouse that we quantify at €4m;
•
After a worsening in the working capital recorded in the last two years (from 15.5% in
2003 to 22.6% in 2005) due to inefficiencies related to the strong top line growth, we
assume a working capital on sales stabilising at 22% as result of better receivables and
payables, thanks to stronger purchasing power to suppliers.
•
A consequent free operating cash flow generation of some €18.1 and €25.4m in 2006e
and 2007e, reaching its peak in 2008e (€38.5m).
Nice: Net Working Capital Evolution
2003
2004
Inventories
11.0
15.1
Accounts receivable
21.5
26.3
Accounts payable
(16.6)
(18.1)
Other activities
1.1
2.4
Other liabilities
(4.7)
(9.3)
Net working capital
12.3
16.5
% on net sales
15.5%
16.3%
2005 2005 PF
24.1
24.0
32.6
32.6
(26.9)
(26.7)
4.8
3.2
(7.1)
(7.1)
27.5
26.0
22.6%
21.4%
2006e
31.2
43.4
(34.7)
4.2
(9.2)
34.8
22.0%
2007e
37.5
52.1
(41.7)
5.0
(11.1)
41.8
22.0%
2008e
43.7
60.7
(48.6)
5.8
(12.9)
48.7
22.0%
Nice: Cash Flow
CASH FLOW (EUR m)
Net Profit (reported) + Minorities
Non cash items
Cash Flow
Change in Net Working Capital
2003
2004
2005 PF
2006e
2007e
2008e
15.2
20.7
20.7
29.1
36.9
45.2
2.8
3.2
2.5
2.8
3.5
4.2
18.0
23.9
23.2
31.9
40.5
49.4
0.0
-4.0
1.5
-8.8
-7.0
-6.9
-5.6
-5.9
-4.2
-5.0
-8.0
-4.0
12.5
14.0
20.5
18.1
25.4
38.5
Net Financial Investment
0.0
0.0
0.0
0.0
0.0
0.0
Dividends
0.0
0.0
0.0
0.0
-8.1
-11.1
Capex
Operating Free Cash Flow
Others
7.2
0.1
-41.1
35.8
0.7
0.8
19.7
14.2
-20.5
54.0
18.0
28.2
Net Cash
6.9
21.0
0.6
54.6
72.6
100.8
Free Cash Flow
28 July 2006 ●
12
Nice
2003-2005: a period of strong growth
Nice has enjoyed strong growth since its foundation particularly over the last five years,
following the integration of Motus to penetrate the screen sector. As we can see in the charts
below, it registered a sales CAGR for ’03-’05 of around 23.7%, which was due entirely to organic
growth. Profitability growth for the period was also at similar rates.
Nice: Sales, EBITDA, EBIT and Net Financial Position over 2003-2005
Total sales
EBITDA
EBITDA margin
EBIT
EBIT margin
Net debt (cash)
Source: Company Data
2003
2004
2005
Italian GAAP
79.4
25.5
32.1%
22.7
28.6%
(6.9)
IFRS
101.1
35.1
34.7%
32.8
32.4%
(21.1)
IFRS
121.6
39.0
32.1%
36.2
29.8%
(19.0)
CAGR ’03-‘05
+23.7%
+23.6%
+26.4%
This impressive trend was driven by the excellent performance on the screen division (41.8%
’03-’05 CAGR) coupled with the material increase for the gate division (17.6% ’03-’05 CAGR),
both at top line and profitability level, explained by:
•
the launch of new products with higher technological level. Note the very high
contribution of the new products to top line growth;
•
the mentioned focus on internationalisation.
Screen division: ’03-’05 CAGR
2003
2004
2005
Italian GAAP
IFRS
IFRS
18.6
27.3
37.4
Total revenues
CAGR ’03-‘05
41.8%
Gate division: ’03-’05 CAGR
Total revenues
2003
2004
2005
Italian GAAP
IFRS
IFRS
60.8
73.9
84.1
CAGR ’03-‘05
17.6%
28 July 2006 ●
13
Nice
’03-’05 Top Line CAGR by Area
Total Europe
% of sales
2003
2004
2005
CAGR ‘03-‘05
72.2
92.6
111.4
24.1%
91.0%
91.5%
91.6%
America
1.0
1.6
2.0
4.0
4.6
5.2
14.2%
Asia - Oceania
2.1
2.4
2.9
16.8%
79.4
101.1
121.6
23.7%
Total
43.5%
However, given the overall trend a few factors need to be explained specifically:
•
The slight contraction in Group’s EBITDA margin in 2005;
•
The evolution of working capital;
•
The real estate spin-off.
Contraction in the Group’s EBITDA margin in 2005
The Group’s EBITDA margin declined slightly from 34.7% in 2004 to 32.1% in 2005, mainly due
to an increase in commercial costs (from €7.7m to €10.4m, +35.4% Y/Y), labour costs (from
€11m to €14.6m, +32.2% Y/Y) and general & administration expenses (net of other income,
from €5.9m to €7.8m, +32.6% Y/Y) related to:
•
the strengthening of the commercial function, with the opening of new subsidiaries and
an increased sales force;
•
marketing costs to penetrate the Do-It-Yourself channel and the large-scale distribution
through the Mhouse brand;
•
increased costs to improve the research and development function.
The evolution of working capital
The increase in net working capital from around 15.5% as percentage of sales recorded in 2003
to 22.6% in 2005 can be explained essentially through the equivalent increase in absolute and
relative inventories. Note the material increase in inventories between 2004 and 2005 (from
€15.1m to €24.1m) mainly attributable to the expected increase in sales in the first quarter of
2006 and, partly, the implementation of the new Axapta software for warehouse management.
28 July 2006 ●
14
Nice
Nice: 2003 – 2005 Net Working Capital Evolution as % of sales
Inventories
Accounts receivable
Accounts payable
Trading working capital
Other activities
Other liabilities
Net working capital (NWC)
% on net sales
2003
11.0
21.5
(16.6)
15.9
1.1
(4.7)
12.3
15.5%
2004
15.1
26.3
(18.1)
23.3
2.4
(9.3)
16.5
16.3%
2005
24.1
32.6
(26.9)
29.8
4.8
(7.1)
27.5
22.6%
Despite this increase in net working capital, the Group was able to generate operating free cash
flow of between €15 and €20m per year, thanks to its efficient business model, which requires
minimal investments (€5m/€8m per year) to sustain top line growth. The Group’s net financial
position is positive to the tune of €19m vs. €6.9m recorded in 2003.
The real estate spin-off: a book value transaction
In February 2006, Nice spun-off its real estate assets to Nice Immobiliare S.r.l., a vehicle owned
by the parent company Nice Group B.V. The transfer included:
•
the book value of the assets (€7m for non-core assets owned in Tuscany plus some
€17m for the headquarter, for total €24m) plus credits and other financial assets of
some €4.3m;
•
€18m of the Group’s net cash to the new vehicle, leading to a 2005 pro-forma Group’s
net cash position of €0.6m.
Instead of owning the headquarters, the Group now has an 6-year rental contract with a 6 year
renewal clause. We assumed a net cost for the company of around €1m in 2006e, taking into
account the yearly rent, lower depreciation charges and tax shield. This represents about 5% of
2005 net profit. On the other hand, the company will benefit from higher return on capital
employed.
Peers profitability compared to Nice
To complete the picture, below we summarize the key figures of Somfy and FAAC, the Group’s
main competitors in the “screen” and domestic “gate” sector respectively.
28 July 2006 ●
15
Nice
Peers profitability compared to Nice
Nice
FAAC
Somfy
2004
2005
% ch.
2003
2004
% ch.
2004
2005
% ch.
Domestic market
20.0
22.5
12.5%
47.4
50.8
7.1%
170.7
177.4
3.9%
European Union
72.5
88.9
22.6%
59.7
62.7
5.1%
313.0
325.2
3.9%
8.6
10.2
18.6%
18.5
19.9
7.3%
85.4
88.7
3.9%
101.1
121.6
20.2%
125.6
133.4
6.2%
569.1
591.2
3.9%
32.8
36.2
10.6%
23.7
30.9
30.5%
113.7
116.7
2.6%
32.4%
29.8%
18.9%
23.2%
20.0%
19.7%
(0.2)
(0.1)
1.7
1.3
(0.6)
(0.6)
0.0
0.0
(0.2)
1.6
0.0
0.0
Rest of the World
Total sales
EBIT
EBIT margin
Net financial income (charges)
Extraordinary items
Pre-tax profit
-43.5%
-21.4%
0.0%
32.5
36.1
11.0%
21.1
37.4
77.2%
113.1
116.1
2.7%
Taxes
(12.9)
(14.5)
12.3%
(8.2)
(9.7)
19.3%
(37.1)
(24.0)
-35.3%
Tax rate
39.6%
40.1%
38.8%
26.1%
32.8%
20.7%
0.0
0.0
(0.1)
(0.3)
11.7
14.9
27.4%
19.7
21.7
12.8
27.4
87.7
107.0
22.0%
Minorities
Net profit
10.2%
113.9%
28 July 2006 ●
16
Nice
Market overview: the untapped synergies
The Nice Group operates in the Home Automation System market for Gates and Screens. The
Group’s products comprise: 1) automation systems for gates, garage doors and barriers and 2)
automation systems for awnings, rolling shutters and curtains, with an international focus on the
domestic market, Europe, the US and developing countries in Eastern Europe, Asia and Africa.
By turnover and according to 2005 data provided by Frost & Sullivan, the world market is
estimated at around €2.5bn, of which gates represent some €1.7bn (or 67.5%) and screens the
remaining €0.8bn (or 32.5%). We summarize what we consider to be the main common features
and the main differences of the two Group’s core businesses below:
Common features:
•
In the last for years the two sectors have registered high CAGRs of 7.3% and 7.1%
respectively, driven by favourable macro-economic trends. These are: 1) the increased
demand for higher living standards and comfort in developed regions, 2) positive trends
in Europe and US in real estate and 3) GDP growth in large and affluent emerging
markets such as Eastern Europe and Asia. All these elements were coupled with a
strong generalised increase in demand for security.
•
The leading players are mainly focused on the domestic market, with a marginal
presence abroad. This is true both in the gate and screen sector, where the US
Chamberlain Group (the leading operator in the gate sector with a 22% market share)
or French Group Somfy (the market leader in the screen sector with a 66% market
share) mainly sell in the domestic market.
•
Finally, the operators mentioned above mainly focused on a sole product (gates or
screens). They have absolutely no presence in the other sector and even focused on a
niche segment (in the case of the US Chamberlain Group involved in the production of
Home Automation devices for garage doors) or only have a marginal presence (French
Group Somfy, 80% of whose revenues are generated in screens and 15% in gates –
Source: Somfy data).
Differences:
•
In terms of concentration, the Group’s two reference markets show material
differences. The gate sector is quite fragmented. The biggest player, the Chamberlain
Group, has a 22% market share and its four competitors are 3x/4x smaller with a
7%/5% market share each. In contrast, the screen sector is highly concentrated with
the main players (Somfy - 66% market share and the German Elero - 13% market
share) accounting for almost 80% of the market.
28 July 2006 ●
17
Nice
Mainly Inter\national
Players
US
Mainly
US
Gate: 2005 Global Market Share
Screen: 2005 Global Market Share
22%
Chamberlain
FAAC
7%
CAME
7%
Nice
66%
Elero
13%
Becker
5%
Genie
Somfy
5%
Nice
4%
4%
Source: Frost & Sullivan 2006
•
In terms of geographical presence, the charts below show that the North America and
Western Europe are the main markets, even if with material differences. We refer to the
gate segment, where the biggest players are concentrated in Western Europe. The US
operators, accounting for a relevant 41.5% of the sector, are mainly involved in the
niche of garage doors. As for the screen market, the 68.7% is in the hands of Western
Europe operators.
Gate: 2005 Global Market Breakdown by Area
Screen: 2005 Global Market Breakdown by Area
Asia Pacific
7.5%
North America
11%
Middle East, North &
South Africa
5.5%
North America
41.5%
Western Europe
36.3%
Middle East,
North & South
Africa
6.3%
Rest of Europe
2.3%
Central Eastern
Europe
6.1%
2005 Total Estimated Size: €1.7bn
Asia Pacific
8.7%
Rest of Europe
2.3%
Central Eastern
Europe
3.8%
Western Europe
68.7%
2005 Total Estimated Size: €0.8bn
In this contest, Nice is the main player as it has an international presence and operates in both
gates and screen automation systems. The only listed company is Somfy, 80% of whose total
revenues are represented by motor systems for rolling shutters, mainly sold in its domestic
market.
“Gate”: a still growing market especially in North America
and Eastern Europe
As we explained above, the gate market is fairly fragmented, with the top five players controlling
around 45% of the global market. North America represents the largest market, thanks to the
leadership of the US Chamberlain Group (22% share), and is mainly focused on automation
systems for garage doors. Western Europe is the worlds’ second largest market, but focuses on
automation systems for gate.
28 July 2006 ●
18
Nice
In detail, Italy is the biggest European market followed by France and Germany. Well established
Italian companies FAAC and CAME have a consolidated presence in their domestic market, and
both have a world market share of 7%.
Nice is the forth largest operator in the global market, with a 5% share, and represents an
emerging fource.
As the tables below show, the gate sector recorded a CAGR of 7.3% between 2001 and 2005
with total sales of €1.7bn. According to Frost & Sullivan estimates this trend should be replicated
between 2005 and 2011, recording a material CAGR of 8.4% and sales of some €2.8bn.
Gate Sector Growth Trend
3.000
CAGR 2005-11 = 8,4%
2.500
CAGR 2001-05 = 7,3%
(€m)
2.000
1.500
1.000
500
-
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
The key drivers (positive real estate construction trends, increased demand for higher living
standards and comfort and increased need for security) which sustained growth in Western
Europe and North America and led to the CAGR of 7.3% for ’01-’05, should further sustain the
growing trend of these regions in the next five years, while boosting emerging markets in
Eastern Europe, Asia and the Pacific area.
Gate Sector ‘01-’05 CAGR by Area
21.0%
Gate Sector ‘05-’11e CAGR by Area
21.0%
20%
18.0%
18.0%
15.0%
15.0%
12.0%
12.0%
9.0%
6.8%
7.6%
7.6%
7.5%
9.0%
9.1%
8.5%
8.7%
Western Europe
Central Eastern
Europe
8.7%
7.7%
6.5%
6.0%
6.0%
3.0%
3.0%
0.0%
Asia Pacific
13.6%
Western Europe
Central Eastern
Europe
Rest of Europe
Middle East,
North & South
Africa
North America
0.0%
Asia Pacific
Rest of Europe
Middle East,
North & South
Africa
North America
28 July 2006 ●
19
Nice
In terms of price mix, the expansion of the main players in this emerging markets characterised
by lower purchasing power of the end user coupled with manufacturing delocalisation in low cost
countries should lead to a gradual reduction of average selling prices.
“Screen”: a more concentrated market
The screen sector shows a much higher concentration. Western Europe represents the largest
market accounting for 68.7% of the total, with the top three players holding a combined market
share of around 84%. These are Somfy (66%), and German groups Elero and Becker Antribe
(13% and 5% respectively).
Nice, the youngest player among the market leaders, is world’s forth largest operator, with a 4%
market share.
As the tables below show, the screen sector recorded a CAGR of 7.1% between 2001 and 2005
with total sales standing at €0.8bn. According to Frost & Sullivan estimates this trend should be
replied between 2005 and 2011, recording a CAGR of 8.2% and sales of €1.3bn.
Screen Sector Growth Trend
1.400
CAGR 2005-11 = 8,2%
1.200
(€m )
1.000
CAGR 2001-05 = 7,1%
800
600
400
200
2001
2002
2003
2004
2005
2006
2007 2008
2009
2010
2011
While the gate sector targets both the residential (automation systems for gates and garage
doors) and commercial segments (barriers), the screen sector focuses solely on the residential
market. As a result, the key drivers here are even more real estate construction trends, the
increased demand for higher living standards and comfort and the increased need for security.
Growth opportunities for the sector over the next five years lie in the emerging markets of Asia,
the Middle East, North and South Africa and North America. In particular, the US market has a
large untapped potential, as this kinds of products are not established and are under-developed.
28 July 2006 ●
20
Nice
Screen Sector ‘01-’05 CAGR by Area
14.0%
Screen Sector ‘05-’11e CAGR by Area
13.5%
14.0%
12.6%
12.5%
12.0%
11.1%
9.6%
10.0%
11.7%
12.0%
10.0%
9.6%
8.6%
8.0%
8.0%
5.5%
6.0%
6.9%
7.3%
6.0%
5.2%
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
Asia Pacific
Western Europe
Central Eastern
Europe
Rest of Europe
Middle East,
North & South
Africa
North America
Asia Pacific
Western Europe
Central Eastern
Europe
Rest of Europe
Middle East,
North & South
Africa
North America
The industry is becoming increasingly competitive scenario. Against this backdrop, an increase of
procurement of basic components from Eastern Europe and China coupled with the main players
partly shifting production to low cost countries should allow companies to counterbalance the
expected decline in the average sales price.
Untapped synergies between gates and screens
Currently, there is a clear separation in the home automation market between the gate and the
screen sectors in terms of 1) standardisation of basic components; 2) research and development
costs; 3) logistic costs and 4) mainly, the absence of a recognised radio-standard to implement
the wireless technology allowing all home automation devices to “speak to each others”.
1.
The standardisation of basic components should allow them to be used in the
production of both gates and screen, implying lower average costs per unit. This
synergy is extremely important for all advanced electronic devices.
2.
As a result, the standardisation of basic components should lower research and
development costs, as it will allow for a) shorter design and launch phases for new
products and b) more flexible and lighter R&D teams.
3.
Last but not least, there are logistic synergies relating to a) more efficient warehouse
management b) higher volumes of components acquired, giving suppliers grater
purchasing power and c) fewer phases to be outsourced with further warehouse
improvement.
Thanks to its presence in both the gate and screen sectors and its higher level of technology in
terms of electronic components, Nice seems to be one step ahead compared to the main home
automation players (see the section Research and Development at page 15).
Finally, we highlight the current absence of recognised radio-standards to implement the
wireless technology. Further synergies could be exploited with the introduction of a common
standard recognised by all home automation producers allowing all devices to interact, boosting
their long-term penetration worldwide. In this field, it seems that the main chip producers
(Motorola, Honeywell, Samsung, Cisco Systems, STM and others) are developing a common
radio-standard through the so-called ZigBee Alliance.
28 July 2006 ●
21
Nice
Here below, we summarize the competitive scenario for the home automation market:
Nice: Competitive Scenario of the Home Automation Market
Entry barriers
• Technical competences and know-how
• Product quality
• Achievement of security certificates and
homologation for all the products
Medium level of intensity
Contractual power from suppliers
Players
Contractual power from clients
• Abundant basic components and
consumption materials supply
• Concentrated market, especially in the
“screen” sector
• Market highly fragmented
• Lack of supplying agreement, binding
in the long term
• Few competitors with a strong
international presence
• Unlikely vertical integration
• Lack of significant replacement costs
• Three on four of the main players are
Italians
• Unlikely vertical integration
Low level of intensity
• Lack of relevant replacement costs
• Strong competition in rising markets
(Eastern Europe, Asia ect)
High level of intensity
Substitutive products/processes
• Lack of substitutive products
28 July 2006 ●
22
Nice
Nice - the keys to the equity story: design,
innovation and outsourcing
Nice has a unique business model that differs from its main competitors in its flexibility and
efficiency. Since its foundation in 1993, the Group has always had a strong commitment to
technological innovation, coupled with fully outsourced production.
The chart below highlights that the highest added value phases (Research and Development and
logistic and quality control) are kept in-house, while the low added value activities (production)
are fully outsourced.
Nice Business Model
Research &
Development
Planning,
Programming
and
Procurement
Design
Production

In-house R&D

100% production
outsourced

Commitment to
technological
innovation
Large number of
selected suppliers

Bargaining power
with suppliers

Centralised
warehouse

Attention to style and
design

Focus on time-tomarket optimisation
and cost reduction
Marketing and
Communication
Logistics and
Quality Control

Distinctive brand
identity (product and
corporate) in an
unbranded industry

Coherent
communication and
attention to style of
communication
Strict control of key
phases of production

In-House
Sales and
Distribution

Extensive
geographical coverage

Ca. 80% of 2005 net
sales outside Italy

Highly diversified
customer base
Continuous
marketing effort
Fully Outsourced
Partially Outsourced
Research and Development
Products are developed internally through a highly skilled in-house R&D team. This translates
into in-house R&D expenses of some €3.2m (2.6% of net sales) vs. €1.4m recorded in 2003.
There are three steps to launching a new product:
•
Design of new products (or improvement of existing ones) driven by joint and
coordinated efforts between the top management and the R&D department based on
the input provided by the sale force;
•
Manufacture of the prototype, with technical and commercial support;
•
The procurement of components from selected suppliers leading to pre-series, and inhouse laboratory testing.
This process usually
commercialization.
takes
between
six
to
eighteen
months
from
conception
to
We point out the significant importance of design and ergonomics in the home automation
market (both gates and screens), where products are not particularly “sexy” and need to be
perceived by the final client as higher in terms of quality. In this field, Nice was a pioneer for the
28 July 2006 ●
23
Nice
application of design solutions for gate and screen, thanks to a highly experienced in-house team
supported by longstanding relationship with external consultant.
Nice: The three steps before the launch of a new product
R&D
Design
Top Management
Sales
Technical
Commercial
Procurement
Planning of new products/
Improvement of existing
products
Prototype
Input from
Market
Analyses
Pre-series/ In-house
laboratory testing
Launching
We provide two examples of product innovation, which highlight all the features in terms of the
higher technological level and design explained above:
•
Max controller: it is a modular tubular “Plug & Work” engine developed through Nice
MAP technology (Modular Assembling Product) for screens. It guarantees higher
performances in terms of silence and adaptability to existing screens, also allowing for
an easier management of spare parts, and can be adapted to ZigBee technology;
•
Nice Way: it is an innovative modular radio-control system. 11 modules can be placed in
5 different holders allowing up to 80 automation groups, both gate and screen to be
managed.
The focus on new technological solutions and new material allows the Group to continuously
improve overtime the technological content of its products combined with a lifestyle content and
easy installation for its highly diversified customer base. This explains how the Group well
outperformed both the gate and the screen sector in the past three years, both domestically and
internationally.
28 July 2006 ●
24
Nice
Nice: 2003-2005 CAGR vs. peers in gate market
17.6%
Nice: 2003-2005 CAGR vs. peers in screen market
41.8%
7.7%
7.4%
(1)
1.0%
Nice
Somfy
Gate Market
Nice
Screen market
Source: Frost & Sullivan 2006, companies’ annual reports
Planning, Programming and Procurement
The efficiency of the business model is based on the longstanding relationship with more than
300 selected suppliers which guarantees the quality of components required by the company.
The procurement is the final step of a planning and programming activity involving:
•
a team of seven electronics and electro mechanics engineers;
•
the sale force which quantifies the basic components required for the following year’s
production on the basis of the approved budget;
Nice: The procurement activity
P ro d u c tio n
P ro g ra m m in g
T e c h n ic a l
m anagem ent
(e le c tro n ic s
a n d e lec tro
m ec h an ic s )
Id e n tify in g b a s ic c o m p o n e n ts
re q u ire d fo r p ro d u c tio n
Q u a n tify in g b a s ic c o m p o n en ts
re q u ire d fo r n e x t y e ar p ro d u c tio n
S a le s
Budget
S a le s
M a te ria ls R eq u irem e n t
P la n n in g
(M R P )
Y e arly O rd e r
P ro c u re m e n t
28 July 2006 ●
25
Nice
This process translates into a yearly order, allowing the Group to increase its purchasing power
in relation to suppliers. In order to improve procurement efficiency, we believe the critical
elements lie in:
1.
a further standardisation of basic components between the gate and the screen
sectors allowing synergies in terms of time-to-market optimisation and average
cost reduction of single component;
2.
a stronger focus on low cost countries following the launch of procurement in China
and Eastern Europe.
Production, Logistic and Quality control
The flexibility of the business model lies in fully outsourced production through established
relationship with 77 selected third-party manufacturers, mainly located in Northern Italy. This
implies an efficient cost structure and a low capes requirement. The manufacturing process of
the final product is based on an inflow of basic components which are tested in-house through
rigorous quality control and/or at third-party manufacturers through tools and equipment
provided by Nice. Such components are then sent to third-party manufacturers to be assembled.
The finished products are finally tested (in-house or at third-party manufacturers again through
tools and equipments provided by Nice) and then stored for sale.
It is clear that the full outsourcing of production requires highly centralised coordination to
maintain efficiency and a strong relationship with third-party manufacturers. For each phase,
there are at least two manufacturers available, in order to avoid any delay in the process.
It is also clear that the main advantage of this system lies in keeping in-house expertise
confidential.
Basic Components
Assembling
Testing
Basic Components
Silk-screen Printing
Basic Components
Finishing
S = Suppliers
T = Third-Party Manufacturers
28 July 2006 ●
26
Nice
Marketing and Communication
Nice products are perceived by installers and distributors as having a distinctive brand identity in
an unbranded industry, thanks to the company’s focus on technological innovation, design and
ergonomics. Its marketing activities aim to create a strong brand identity through communication
based on the functionality of the Group’s products and, overall, at convincing the final customers
about the higher living standards and comfort the Group’s products offer. These activities
incude:
•
Participation at national and international trade fairs;
•
Innovative and detailed catalogue advertising in specialized magazines and trade fairs
associated with techniques such as effective headlines, impressive product names and
visible packaging;
•
Training courses and events/conventions dedicated to distributors in order to create a
kind of “customer loyalty”;
•
Support to the clients’ promotional activity through mail shots and local promotion and
advertising;
•
Its presence in specialized national and international newspapers and reviews.
These elements clearly explain the choice of the management to focus on mono-brand products
and make significant advertising investment of €4.7m in ’05 (or 3.9% of net sales vs. €2.2m,
2.8% of 2003 net sales).
Sales and Distribution
Nice products are sold through four channels: Installers, Distributors, Manufacturers and
Electronic equipment wholesalers. Following the incorporation of Mhouse in 2003, the Group is
also present in the large-scale retail Do-It-Yourself market (DIY), mainly through distribution
agreement with large-scale operators. As shown in the table below, installer and distributors
represent the most important channels but are also highly fragmented, since the top ten clients
account for around 16% of net sales.
Nice: Distribution channel breakdown
DIY
Wholesalers 7.2%
2.8%
Installers
30.8%
Manufacturers
16.1%
Distributors
43.1%
2005 Net Sales
28 July 2006 ●
27
Nice
The sales organisation is very lean and headed by a sales director and four managers (Export,
Commercial subsidiaries, Gate Italy and Screen Italy), all with responsibility for net sales and
margins. The targets are monitored quarterly, while activities monthly. They control 13
subsidiaries, the headquarter included, all over the world (US, Western Europe, Eastern Europe
and China) and a sales force of 140 people who receive a basic salary plus commission (between
20% and 30% of total).
The main synergies relate to the further integration of the gate and screen sector in sales and
distribution.
Nice: Sales Force Organisation
Installers
Distributors
Manufacturers
Installers
End-Users
Electric
Material
Wholesalers
Large-scale
retail DIY
28 July 2006 ●
28
Nice
Two integrated product lines with a strong
international presence
Nice is the main player in the home automation market involved in the production of automation
systems for both gates, garage doors and barriers (the gate sector) and awnings, rolling shutters
and curtains (the screen sector).
The Group’s structure is very lean with the parent company fully controlling (or through a
majority stake) all the subsidiaries based in the Group’s key markets.
NICE: Group Structure
Nice S.p.A.
Oderzo, Treviso –
Italy
100%
100%
Nice France S.a.s.
Buchelay – France
100%
Nice Deutschland
GmbH
Gelnhausen – Germany
Nice UK Ltd
Chesterfield – UK
99%
60%
Nice Belgium S.A.
Haasrode – Belgium
60%
Nice Automatismos
Espana S.A.
Madrid – Spain
100%
100%
Mhouse France
S.a.r.l.
Aubagne – France
Nice Screen S.A.
Barcelona – Spain
100%
Nice USA Inc.
Jacksonville – USA
99%
Mhouse S.r.l.
Oderzo, Treviso – Italy
100%
79%
Nice Shanghai Automatic
Control Co. Ltd.
Shanghai – China
Nice Polska S.p. Z.o.o.
Pruszkòv – Poland
S.C. Nice Romania
S.r.l.
Bucharest – Romania
Its presence in both sectors began in 2000 with the integration of Motus, a domestic player in
the production of screen products. Currently, the screen division accounts for around 31% of the
Group’s 2005 net turnover showing an impressive increase in the last two years (’03-’05 CAGR of
41.3%). The profitability of the two product lines is quite similar.
In 2003 the management created a new dedicated brand, called Mhouse, to penetrate the Do-ItYourself channel. Thanks to the features of the products (easy to install and user friendly - both
gate and screen), revenues for the subsidiary more than doubled between 2003 and 2005
coming in at €10m, with a target of €20m by 2008.
Nice: Revenues Breakdown by Product
2003
Net sales*
2004
Gate
Screen
Total
60.8
18.6
79.4
% on total
76.6% 23.4%
100.0%
Gate
Screen
2005
Total
Gate
Screen
CAGR
Total
73.9
27.3
101.2
84.1
37.4
121.6
73.0%
27.0%
100.0%
69.2%
30.8%
100.0%
Gate
Screen
Total
17.6% 41.8% 23.7%
The key driver of this impressive growth was the strong focus on the international expansion.
Since the foundation in 1993, the company enjoyed a material percentage of export on total
turnover (57%), increasing year-by-year to the current 82%.
28 July 2006 ●
29
Nice
The Nice story
€122m
1
C
05
/20
993
€101m
1%
+4
R:
AG
€79m
€70m
€54m
€45m
€25m
€2m
1993
% Export
€3m
€4m
€7m
€12m
€18m
1994
1995
1996
1997
1998
1999
2000
2001
57%
65%
53%
58%
61%
64%
69%
67%
Nice
France
Nice
Polska
Nice
España
Nice
Belgium
2002
2003
2004
2005
68%
77%
80%
82%
Nice
China
Nice
UK
Nice USA
Nice Deutschland
Nice Romania
Note: Italian GAAP before and including 2003, IFRS for 2004 and 2005
As already mentioned in the section on the company’s reference market, Nice differs from its
competitors, as it is the main player involved in both businesses, and has a significant
international presence. The Group is present in:
•
Western Europe with nine subsidiaries between the UK, Spain, France, Italy, Belgium
and Germany (9% average market share and ranking 3rd).
•
Eastern Europe with two subsidiaries in Poland and Romania (14% average market
share and ranking 2nd);
•
Middle East and Africa with a 3% market share and ranking 3rd;
•
North America with one subsidiary since 2005;
•
Asia and Pacific area with a 2% market share and ranking 6th. The Group is also present
in China since 2002 with a subsidiary.
France
France represents the Group’s main market, accounting for around 28% of 2005 net sales. The
key feature is its high concentration in the screen sector, while the gate sector is less developed
and has untapped potential. The distribution is mainly operated by installers. The main
competitors are Italian companies CAME and FAAC in the gate sector and the market leader
Somfy in the screens market.
Italy
The domestic market is the Group’s second largest market accounting for around 18.5% of 2005
net sales. Compared to the French market, Italy is highly concentrated in the gate sector, while
the screen sector is still in the early development stage with a strong potential. The main
channel is represented by installers, while Do-It-Yourself is less developed. The main competitors
are the Italians CAME and FAAC in the gate sector and Somfy in the screen division.
28 July 2006 ●
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Nice
Rest of Europe
As already mentioned in the description of the reference market, the rest of Europe, and in
particular Eastern Europe, is still at an early stage development and represents the most
interesting market in terms of growth opportunities. Russia is the largest and most dynamic also
helped by a growing trend in construction (in particular in the residential trend) and favourable
climatic conditions (great variations in temperatures). The rest of Europe and Eastern Europe
represent together the 45% of 2005 net sales. Compared to Western Europe, it is a market more
price sensitive in terms of final customer. The main competitors are the Italians CAME and FAAC
in the gate sector and Somfy and the Germans Elero and Becker in the screen division.
North America
The North American market is enjoying a strong increase in the Screen sector mainly thanks to
an increased need of security coupled with a favourable residential construction trend. In the
gate sector, garage doors are the most developed products. According to the management, the
screens division could be boosted significantly by the heavy impact of climatic conditions in areas
affected by hurricanes. North America is still a virgin market for the Group, accounting for a
modest 1.6% of total sales. The main competitors are US Chamberlain and Genie in the gate
sector (in particular in the garage doors segment) and Somfy in the screen market.
Asia-Africa and Pacific area
The largest markets are China, Japan, India and Australia, all highly fragmented both in gates
and screens. They enjoyed fast growth, especially in the screen sector, driven by increasing
disposable income. In these areas all the main players have negligible market shares
(Chamberlain, FAAC, CAME in the gate sector and Somfy, Elero, Becker in the screen sector).
The impressive growth recorded by the Group in these areas and a revenues breakdown by area
are provided below.
‘03-'05 CAGR by Area
‘03-'05 CAGR
France
Italy
Rest of Europe
North America
Asia-Pacific
38%
10%
25%
44%
17%
28 July 2006 ●
31
Nice
Nice: Revenues Breakdown by Area
2003
Italy
% of sales
France
% of sales
EU 15*
% of sales
Rest of Europe
% of sales
Total Europe
% of sales
America
% of sales
% of sales
Asia - Oceania
% of sales
Total
% of sales
2004
% ch.
8.1%
18.5
20.0
23.3%
19.8%
18.1
25.9
22.8%
25.6%
21.4
26.9
27.0%
26.6%
14.3
19.7
18.0%
19.5%
72.3
92.6
91.0%
91.5%
1.0
1.6
1.3%
1.6%
4.0
4.6
5.0%
4.5%
2.1
2.4
2.7%
2.3%
79.4
101.1
100.0%
100.0%
2005
% ch.
CAGR
‘03/’05
22.5
12.2%
10.1%
32.8%
37.9%
20.1%
22.9%
12.6%
24.6%
20.3%
24.1%
28.1%
43.5%
13.3%
14.2%
23.4%
16.8%
20.2%
23.7%
18.5%
43.3%
34.4
28.3%
25.9%
32.4
26.6%
37.9%
22.2
18.2%
28.0%
111.4
91.6%
60.8%
2.0
1.7%
15.1%
5.2
4.3%
10.6%
2.9
2.4%
27.3%
121.6
100.0%
*Excluding Italy and France
28 July 2006 ●
32
Nice
Next step: further international expansion
The strategy of the management for the next three years is focused on the following two key
drivers:
•
A strengthened position on markets where the Group is already present thanks to the
recognised brand awareness of Nice’s mono-brand products, technological
improvements to existing products and the launch of new ones;
•
Further geographical expansion. The management aims to penetrate regions with high
growth potentials, in particular the North American market and Eastern Europe.
International expansion
The strategy is based on three steps:
•
Entering new markets. It usually takes two years to reach a critical mass;
•
Building brand awareness. Full penetration usually takes one or two years;
•
Boosting volumes to reach a market share above 20%.
Entering new market involves analysing their potential in terms of penetration of both product
lines and starting relationships with local installers and distributors. This might imply the
purchase of local distributors and/or the establishment of commercial subsidiaries. The sales
force building is depending about the total revenues realised (above €1m).
The brand awareness is built by replying the consolidated business model in terms of marketing
and communication. To do this, the company takes part in national and international trade fairs,
as innovative and detailed catalogue with effective headlines, impressive product names and
visible packaging and, finally, supports its clients’ promotional activity through mail shots and
local promotion and advertising.
Volumes are finally boosted by increasing the local sales force and strengthening relationship
with professional operators such as architects, engineers and developers. The key point of this
phase lies in the introduction of products with superior technological and leveraging the Nice
brand.
This strategy will be implemented both in growth markets where the Group is already present
with one of the two product divisions (i.e. Italy and France) and in new areas with high growth
potential (Eastern Europe and North America), through the consolidated channels (installers,
distributors, manufacturers and wholesalers) and the Do-It-Yourself channel.
Specifically:
In the French and domestic markets the management aims to strengthen and integrate the sales
force with a special focus on electric equipment wholesalers coupled with further penetration in
the DIY channel;
The North American screen sector will be aggressively penetrated with a special focus on the
“sun belt” regions (Florida, California and Texas), representing a unique growth opportunity.
In the emerging markets, new subsidiaries will be opened, increasing the sales force and thus
deepening relationships with existing or new distributors.
28 July 2006 ●
33
Nice
The chart below highlights the opportunities represented by the North American market and
Eastern Europe that the company has just started to penetrate.
Nice: New Market Opportunities
Only sales markets
Market Entry
Build brand awareness
Boost volumes
28 July 2006 ●
34
Nice
Profit & Loss account (€ m)
Turnover
Turnover growth %
EBITDA
EBITDA margin (%)
EBITDA growth (%)
Depreciation & Amortization
EBIT
EBIT margin (%)
EBIT growth (%)
Net Fin.Income (charges)
Non-Operating Items
Extraordinary Items
Pre-tax Profit
Tax
Tax rate (%)
Minorities
Net Profit
Net Profit growth (%)
Adjusted Net Profit
Adjusted Net Profit growth (%)
2004
101
27.4
35
34.9
38.4
-3
32
31.7
41.5
0
0
0
31
-11
34.3
0
21
36.0
21
36.0
2005 2006E 2007E
122
158
190
20.2
29.9
20.3
38
51
63
31.3
32.0
33.0
7.7
32.8
24.2
-3
-3
-4
36
48
59
29.2
30.2
31.2
10.7
34.2
24.2
-1
0
0
0
0
0
0
0
0
35
48
60
-14
-19
-23
40.3
39.0
38.0
0
0
0
21
29
37
0.4
40.2
27.1
21
29
37
0.4
40.2
27.1
Multiples
P/E Adj.
P/CEPS
P/BV
EV/ Sales
EV/EBITDA
EV/EBIT
EV/Cap. Employed
Yield (%)
FCF Yield (%)
Balance Sheet (€ m)
Working Capital
Net Fixed Assets
Total Capital Employed
Shareholders' Funds
Minorities
Provisions
Net Debt (-) Cash (+)
2004
16
39
55
70
0
6
21
2005 2006E 2007E
26
35
42
27
29
34
53
64
75
50
114
143
0
0
0
3
4
4
1
55
73
Key Figures & Ratios
Avg. N° of Shares (m)
EoP N° of Shares (m)
Avg. Market Cap. (€ m)
Enterprise Value (€ m)
Cash Flow Model (€ m)
Cash Earnings
Working Capital Needs
Capex (-)
Financial Investments (-)
Dividends (-)
Other Sources / Uses
Ch. in Net Debt (-) Cash (+)
2004
24
-4
-6
0
0
0
14
2005 2006E 2007E
23
32
40
-10
-9
-7
-4
-5
-8
0
0
0
0
0
-8
-30
36
1
-20
54
18
Per Share Data (€)
EPS
EPS growth (%)
EPS Adj.
EPS Adj. growth (%)
CEPS
BVPS
DPS Ord
2004
nm
nm
nm
nm
nm
nm
nm
nm
nm
2005 2006E 2007E
nm
25.1
19.8
nm
22.9
18.1
nm
6.4
5.1
nm
4.3
3.5
nm
13.4
10.5
nm
14.2
11.1
nm
10.6
8.7
nm
1.1
1.5
nm
2.5
3.5
2004
2005
2006E 2007E
nm
nm
0.25
0.32
#VALORE! #VALORE! #VALORE!
27.1
nm
nm
0.25
0.32
#VALORE! #VALORE! #VALORE!
27.1
nm
nm
0.28
0.35
nm
nm
1.0
1.2
0.00
0.00
0.07
0.10
2004
0
0
0
-21
2005 2006E 2007E
0
116
116
0
116
116
0
731
731
-1
677
659
Labour Costs/Turnover (%)
Depr.&Amort./Turnover (%)
Prod. Ratio (Turn./Op.Costs)
11%
3%
1.5
12%
2%
1.4
12%
2%
1.4
12%
2%
1.5
Gearing (Debt / Equity) (%)
EBITDA / Fin. Charges
0%
>10
0%
>10
0%
nm
0%
nm
Cap.Employed/Turnover (%)
Capex / Turnover (%)
54%
6%
44%
3%
40%
3%
40%
4%
Pay out (%)
ROE (%)
ROCE (%) (pre tax)
ROCE (%) (after tax)
0%
30%
59%
38%
0%
41%
67%
40%
28%
25%
75%
46%
30%
26%
79%
49%

Nice

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